I was goofing around with a stock screener the other day and sorted for the company with the highest share price appreciation over the last 52 weeks. The answer? Evolving Systems (NASDAQ:EVOL), an operations systems software provider based in suburban Denver. Its share price growth since August 2002 is a gaudy 2,850%, meaning that every dollar invested in the company a year ago is valued more than $28 today.

This tells you exactly nothing, except that someone's made a few bucks. What intrigued me, though, is that the company, on cursory glance, doesn't look frightfully expensive at this point. Its business is providing operating system software to telecommunications carriers -- not exactly a booming business. To wit, Evolving shed nearly 60% of its top-line revenues between 2000 and 2002. But the company shed even more of its operating costs, and shifted some of its programming work on a contract basis to Infosys (NASDAQ:INFY), the Indian outsourcing giant.

And just as suddenly, Evolving Systems' business and profitability leapt higher -- it's on pace to deliver top lines almost 30% higher than last year's, and it delivered diluted profits of $0.29 a share for the first six months this year versus a loss of $1.07 the previous six months. Some large contract receivables allowed it to turn in positive free cash flow -- though this particular event is not going to be repeated since those contracts represented almost all of Evolving's accounts receivable.

The biggest problems I have with this company are two-fold. First, its five largest customers represent 75% of its revenues. Number portability (the company's primary market) may continue to be a growing business, but a customer or two being lost (not unlikely in telecommunications) would be devastating. The other problem -- and bigger one -- is the company's abominable abuse of its equity in the form the stock options it has granted. In 2001 alone, Evolving Systems granted nearly 18% of company equity as employee options. The company has 13.8 million shares outstanding, but it has more than 3 million in options and warrants allocated to employees -- an absurd potential dilution. You can see the effect after the share rise, where Evolving System's diluted share count is 10% higher than basic.

Plus, Evolving Systems chose to cancel and reissue 1.5 million options in 2002, which means that these options weren't really performance incentives when they were originally granted. They were a core component of compensation, because the conditions on the options being worth anything were apparently meaningless.

Great run on the stock, fellows. Treat your shareholders better and you might actually deserve their faith.