Yesterday, Nasdaq briefly halted trading in TransAct Technologies (NASDAQ:TACT), Tom Gardner's March selection for Motley Fool Hidden Gems. Whatever was the news? A Securities and Exchange Commission investigation, perhaps? Or was the CEO caught using company funds to buy diamond-encrusted welcome mats for his Beverly Hills mansion?

Fear not, good Fools. It was none of those things. Little TransAct just announced that it would be getting a bit bigger, tentatively agreeing to buy rival receipt-printer maker TPG for $23 million. At just under 0.6 times TPG's projected 2004 sales, that is quite a bargain price. TransAct itself trades at a whopping 6.2 times sales.

The deal is good in other respects, too. Whereas TransAct enjoys strong sales of printers to the gaming industry, its sales to banks and retailers have focused on small and midsize businesses in the U.S. TPG complements TransAct's markets by focusing on larger businesses and sales in the international sphere.

Attentive Hidden Gems readers will recall that, when Tom identified possible risks in TransAct's business, high on his list was TransAct's dependence on GTECH (NYSE:GTK) (which has a few problems of its own right now) for one-third of its annual revenues. The TPG acquisition will shrink dependence on GTECH as a percentage of overall sales and simultaneously bring TransAct closer to its goal of owning 20% of the global point-of-sale market.

Assuming the acquisition goes through, TransAct's 2005 sales should increase to well more than $100 million, and its 2005 earnings could increase by at least $0.20 per share if the transaction is all cash, as planned (in a conference call yesterday, TransAct raised the possibility that up to half the sales price might be paid for with a dilutive stock emission, which would depress per-share earnings).

Working off of today's numbers and applying TransAct's most recent net margins to what I think are achievable TransAct/TPG sales of $130 million, I see the combined company earning as much as $1.00 a share in 2005. Now, this is a very "back-of-the-envelope" calculation, so take it for what it is worth. But despite a 92% run-up in share price over the three months since Tom recommended the stock, at a forward price-to-earnings ratio of about 33 and with a sales growth rate upward of 50%, TransAct is not necessarily overvalued.

It is, however, priced for perfection. Shareholders who have been burned before by the likes of Nokia (NYSE:NOK) and Krispy Kreme (NYSE:KKD) should therefore tread cautiously. (On the other hand, eBay (NASDAQ:EBAY) and (NASDAQ:AMZN) shareholders may want to push their luck a bit further.)

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