American Science & Engineering (ASEI) recently reported another lumpy quarter, with revenues down 11% to $42.6 million and 43 cents per share -- that's half of last year's 86 cents and well under the consensus for 62 cents. So, the stock traded up the next day! Why? Because business is good. ASEI saw $45.8 million in orders for the quarter, with 71% of those from international customers, and their backlog hit another record high at $125.5 million. Inventories were up because they have installed systems that are sitting at customers and awaiting acceptance. New programs are coming along and getting funded, and as long as there are terrorists, this company will continue to do just fine.

There was a 12-cent-per-share write-off this quarter, so the earnings miss was not as big as it looked. Their main problem is that their fastest-growing product lines still have lower gross profit margins, because they have not yet moved far enough along the manufacturing learning curve to get significant cost reductions. They are not "slashing prices to move new products" as one off-base commentator suggested. They are simply forward pricing to be competitive, and working on bringing down costs to improve profitability.