Biomedical products maker Kensey Nash (NASDAQ:KNSY) reported third-quarter earnings after the closing bell Tuesday, and the crowd went wild! Yesterday, Mr. Market rewarded Kensey with a 17% bump in its share price, in appreciation of the company's 35% increase in revenues and 68% increase in per-share diluted earnings over the third quarter of 2003, to $0.28 a share.

How did the earnings increase so much more than the revenues? Because the revenue increase actually came in two parts. Sales of absorbable biomaterials used in vascular and other surgeries increased "only" 30%, while the company's much more profitable royalty revenues increased 50%.

As recently as four months back, Kensey did not look nearly so healthy. Motley Fool co-founder Tom Gardner, who recommended Kensey to Motley Fool Stock Advisor subscribers nearly a year ago, was grumbling that management needed to "step up operational performance," increase its sales growth rate, and halt excessive stock dilution.

And Kensey came through on all three counts. In addition to kicking its profit machine into high gear, the company has kept dilution down to a 6% level that is closer to annoying than to outrageous. However, it was still enough to knock 10% off of the per-share diluted earnings increase. Absent the dilution, earnings per share (EPS) would have tracked the company's net income increase of 78%.

And here's another thing I like about the company: In the press release, management actually appears to be interested in giving investors full disclosure, rather than playing "watch the bouncing ball." Right up front, the company shows how much its net income increased and how much less its EPS increased... why, the company even calculates the share dilution for you! (That's what I call service.) Moreover, the company could have calculated earnings per share as I did, by figuring EPS manually and calculating it down to the 10th of a cent, thus arriving at my 68% figure. Instead, the company took the more conservative approach, rounded all the numbers down, and scored itself only a 65%. Conservative accounting -- what a concept.

Now for the big question: Is the stock a buy after today's run-up? Honestly, it could still be. The company's enterprise value-to-free cash flow ratio is a hefty 27, but factor in the five-year projected growth rate for earnings of 25% and you've got yourself a company with an EV-FCF-growth ratio of only 1.1. Compare that to the corresponding ratio for the market as a whole, which continues to hover around 2.0, and the company still looks undervalued.

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Fool contributor Rich Smith owns no shares in any company mentioned in this article.