Body armor company DHB Industries (AMEX:DHB) reported a gem of a quarter yesterday, with revenue increasing 52% and net income 91% year over year. The order backlog is up 83% from last quarter. Not bad!

How could you have heard about this winner? Motley Fool co-founder Tom Gardner selected DHB in Stocks 2004 -- a pre-2004 look at what might be hot. Not only did Tom find a winner but DHB has already exceeded his three-year price target.

Readers of Tom Gardner's Motley Fool Hidden Gems newsletter learned about DHB in February. Each month, Tom recommends one gem, then he discusses three other finalists (of which DHB was one) and why they merit inclusion on his "Watch List." DHB has more than doubled since being put on watch.

What caught Tom's attention in February was a great product, a big order, a stock trading at a discount to its growth projections, and a free cash flow run rate of $13.1 million. In hindsight, it was a 20-20 vision. Add in Tom's preference for high insider ownership and little Wall Street coverage (only two analysts), and you have the catalyst for something great.

Today's reaction to the earnings news -- the stock is down 10% -- looks like DHB disappointed. Hardly! Earnings beat the two analysts' estimates by $0.03 cents per share. Just to give perspective to 2004, the $383 million backlog exceeds 2003's sales of $260 million (and 2003 sales were up 76%).

What may concern investors is the stock's meteoric rise from a 52-week low of $3.80 to a high of $17.40. At today's $14.80, the stock trades at 25 times 2004 earnings. Worse, it trades at 32 times 2005 estimates.

Compatriot Rich Smith recently identified the company's greatest weakness when he wrote, "To make a long story short, DHB's biggest customers may just be its worst enemies." In the latest quarter, 80% of shipments were to the military and 5% were to federal agencies such as the FBI.

War has driven a lot of sales DHB's way. But, just as Taser (NASDAQ:TASR) has taken a foothold and grown quickly, DHB has a similar opportunity -- and one internationally too. Those opportunities could make 2005 a winner also.

The company is using its strong cash flow for debt reduction -- a great move. It is also innovating by introducing new products such as the ballistic blanket. While it lacks the diversification of fellow competitors Ceradyn (NASDAQ:CRDN) and Armor Holdings (NYSE:AH), DHB is gaining market share and has an excellent reputation.

While giants such as General Dynamics (NYSE:GD) and Raytheon (NYSE:RTN) will appeal to investors looking for a conservative investment in defense, DHB is a gem with products that are bulletproof and ready for the war on terror.

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Fool contributor W.D. Crotty does not own stock in any of the companies mentioned.