Carbo Ceramics (NYSE:CRR) is making big money from tiny beads. The oil and natural gas services firm reported a quarterly increase in net income of 53%, with operating margins exceeding 30%. That's a gusher worthy of a closer look.

Carbo Ceramics makes tiny ceramic beads that oil and gas drillers pump into open fractures in rock to allow the oil and gas to flow more freely. This ceramic proppant more effectively props open the fractures (hence the name) than does the traditional sand proppant. As drillers are required to go ever deeper into the ground to find supplies, they are turning to Carbo Ceramics to help them bring it to the surface.

With prices for oil and natural gas at some of their highest levels, drillers are finding it cost-effective to turn to higher-priced ceramics. This is leading to a boom for Carbo Ceramics, which finds its proppant-producing facilities operating at 96% capacity. Even its new plant in China that came on line just last month is already operating at 75% of capacity. High demand has given Carbo Ceramics the green light to raise prices on all of its proppants.

That's not surprising, considering that companies such as Schlumberger (NYSE:SLB) and BJ Services (NYSE:BJS), along with Halliburton (NYSE:HAL) -- despite its well-documented troubles -- are reporting oil-rich profits this week. The triumvirate also accounts for 80% of Carbo Ceramics' growing revenues, boosting it to a 56% market share in the ceramic proppant segment. The company also supplies 9% of all proppant used worldwide.

Carbo Ceramics' next-closest competitor is Norton Proppants -- which is owned by Compagnie de Saint-Gobain, a large French glass and materials company -- with a 22% market share, followed by Mineracao Curimbaba, based in Brazil, with 10%.

Yet let's not delude ourselves. With a share price above $68, Carbo Ceramics is pricey: It sports a trailing price-to-earnings ratio of 32 and a forward PE of 25 based on 2005 earnings. With a hefty price-to-sales ratio as well, upside potential may be somewhat limited, and there isn't much room for error here. Nor has there been much error on Carbo Ceramics' part lately. Over the past year, revenues grew 35% to 55% from one quarter to the next, and long-term growth for the company is pegged at about 35%.

Still, long term in the oil business is never very long. The oil industry is infamously cyclical, heavily dependent on the price of oil and natural gas. As long as prices remain high, drillers have an incentive to keep more rigs pumping. Any signs of softness, though, and investors may find they've hit a dry well.

Fool contributor Rich Duprey is said to have a soft underbelly. He owns shares in Carbo Ceramics but does not own any of the other stocks mentioned in this article.