Despite gorging itself on a smorgasbord of acquisitions, sporting goods manufacturer K2 (NYSE:KTO) managed to turn a profit despite predictions of a flat quarter, fueled by a diet of team and action sports sales in segments it's come to own. Even so, it is creating shareholder indigestion through excessive share dilution.

Paintball is still the juice behind K2's growth. Its Brass Eagle brand generated sales of $28 million, more than 10% of total revenues for the second quarter. That's fully a third of all the revenues of the Action Sports segment. Paintball is a former extreme sport that is quickly gaining mainstream acceptance with some 9 million enthusiasts. K2 owns about 30% of the paintball equipment market through Brass Eagle and Worr Game Products.

Skis and snowboards were also a powerful driver this quarter, churning out double-digit sales in a segment K2 dominates more so than it does paintball. Its eponymous line of skis is ranked No. 1 in terms of sales, while its recently acquired Volkl Sports brand is No. 1 in terms of units sold. When it acquired affiliated ski bindings manufacturer Marker Group during the same deal, it got a brand that was able to grow from a 3% market share in the U.S. to more than 40% in little more than two years. Marketing power like that will continue to power K2's future profits and keep it ahead of competitors Adidas-Salomon and Rossignol.

The question mark for investors in K2 remains the dilution of shareholder value and a debt-laden balance sheet. While the company met analyst expectations of $0.16 a share in earnings, it has continued to churn out ever more shares. To make the acquisitions of its Worth and Brass Eagle brands, as well as its K2 Licensing & Promotions, the company had to dole out almost 7 million more shares, a 32% increase in outstanding shares over last year. Insiders continue to own a significant number of shares, 20%, which could temper their enthusiasm for thinning the sauce too much. Insider ownership is a key component of finding Hidden Gems precisely because it more closely aligns management interests with those of shareholders.

While the company's balance sheet has remained relatively stable quarter to quarter, total debt stands north of $200 million with only $18 million cash in the bank. Still, the company has a structural free cash flow run rate of $30 million that will undoubtedly allow it to make future acquisitions. CEO Richard Heckmann is always on the prowl for more companies to snap up. In the face of a flat second quarter, he may be looking for one (or two or three) acquisitions to energize sales.

K2 is coming into its sweet-spot quarters. Sales growth for the third and fourth quarters are expected to be 90% and 56%, respectively, producing anticipated earnings-per-share growth of 108% and 383%, respectively. While management has previously described itself as a "first- and fourth-quarter company," it is quickly remaking itself into a year-round star with acquisitions that smooth out the bumps.

The question remains whether investors will stand to have their chunk of the company watered down by dilution or whether they will give management heartburn for marginalizing their stake.

Fool contributor Rich Duprey often has heartburn from a diet of Krispy Kremes and Coors Light. He does not own any of the stocks mentioned in this article.