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What on earth is happening in shares of Alcatel-Lucent SA (NYSE: ALU)? This ADR keeps running higher and higher despite a weak expectation. It was as recently as November that this was a penny stock. This ADR looked like it was doomed. If Monday’s gains hold, the ADR will be up for a fifth consecutive trading day. That translates to its stock being up every day in 2013.

The old adage is often true that the stocks which have been punished the most in a down market will rise the most in a rising market. On December 28 the price was down at $1.35 in New York trading. It is just hard to imagine that this stock has risen a whopping 70% since late in November.

We know why this stock has outperformed so much. This has quite simply been too much of a recovery, but we have to admit that logic may get stampeded here.

It was just last week that we saw an upgrade from Credit Suisse. The rating was lifted only to “Neutral” from a prior “Underperform” rating due to a positive outlook on the company’s debt agreements. Apparently the tide may be turning as the negative analyst crescendo reached a peak in early October. It was at that time that Goldman Sachs gave it a “Conviction Sell” rating and UBS downgraded its rating to Sell. Then in November came yet one more downgrade from Bernstein, cutting its rating to Underperform due to forward cash concerns. The consensus price target from Thomson Reuters is currently down under $1.30 per ADR.

As far as that negative crescendo ending, in December we saw two upgrades in Alcatel-Lucent. Evercore Partners started it with an Overweight rating and Natixis upgraded the troubled communications equipment player to Buy. Credit Suisse now believes that the recent $1.6 billion in debt now giving the company ample cash into 2015. The firm even suggests that Alcatel-Lucent will resume some tiny revenue growth in 2013 and 2014 and it sees long-term operating margins of 3% by 2015 that is under the company’s forecast of 6% to 9%.

Shares of Alcatel-Lucent have really managed to come back rather strong. The question to ask now is if this ADR has risen too far and too fast. Europe’s woes are not magically disappearing even if the fiscal cliff in America has mostly been averted. If the company can execute on its wind-down of less profitable efforts then maybe it can achieve its own gross margin targets.

We would note that Thomson Reuters is calling for revenue to be down almost 1% in 2013 to $18.65 billion and that is after an expected double-digit sales drop in 2012. If the results are this weak, then what may be driving the interest is a comparison to Cisco Systems Inc. (NASDAQ: CSCO). These two companies are nearly impossible to compare these days but that is how Wall Street traders think when you see a parabolic move like you have seen of late in Alcatel-Lucent shares.

Here is the breakdown of the comparison: Cisco is worth about $108 billion in market cap and its fiscal year consensus estimate from Thomson Reuters is $48.7 billion in sales. That gives the value peg at close to 2-times sales. Alcatel-Lucent has a market cap that is nearly back up to $4 billion. Its 2013 Thomson Reuters sales estimate is $18.65 billion. If Alcatel somehow could get its ship back in order enough that it could trade at even half the revenue multiple (at 1-times sales) then traders would be hoping that shares could rise back up closer to $8.00 over the long-term.

We would question this heavily. Alcatel-Lucent is not Cisco and it may not ever be unless Cisco really drops the ball. Still, this is how Wall Street traders evaluate turnaround stocks when the market recovery is taking hold. We would also note that Alcatel-Lucent was valued at $8 and $10 back in 2007 before the recession took its toll on the company’s endless turnaround strategies.

Alcatel-Lucent’s sales were $23.9 billion in 2008 and have been falling since. That is why we cannot endorse the revenue comparison of Cisco. Cisco has seen its sales rise from $40 billion in 2010 up to $48.7 billion expected in 2013.

Short selling activity has remained high here and we would consider that short-covering is partly behind the surge of late. As of December 14, the short interest in Alcatel-Lucent was 20.02 million ADRs and that was down only marginally from the recent peak at the end of November when the short interest was 21.98 million ADRs. The peak in the short selling was back at the end of April 2012 when the short interest was 28.67 million ADRs.

Our take is that Alcatel-Lucent shares have likely already recovered too much on the surface. The problem with our outlook is that traders and investors can chase up a low-priced down and out turnaround far more than logic might dictate. That means that the love could chase it up even more.

JON C. OGG