It would seem that a business focused on reducing health care costs should be a natural winner in today's economy. It's certainly true that investors have made pharmaceutical benefits manager Express Scripts (NASDAQ:ESRX) a winner this year, as the shares have nearly doubled over the past 12 months.

The company released its third-quarter earnings report after the close yesterday, and it was more of the same; the company continues to drive greater profitability. Revenue was up only 2%, but gross profit grew 25% and operating profit climbed 24% over last year's third quarter. At the bottom line, earnings per share climbed 34%, after adjusting for certain items, to $0.67, six cents better than analyst estimates. The company also increased its earnings guidance for the remainder of the year.

Although revenue from home delivery of specialty drugs rose 46%, overall home delivery prescriptions were up only 2%, and retail claims processed rose 4% in the period. Revenue looked a little bit light, but I don't think that's terribly important. Yes, revenue drives the bus, but the company's own guidance calls for about 4-6% growth in scripts per member. In other words, torrid top-line performance is not the story here.

The growth story here is on the profitability side. Express Scripts continues to look for ways to lower purchasing costs and incorporate more generics into the mix, and that's a significant part of what allowed the company to boost its gross profits per adjusted claim by 20% this quarter. Impressive as that may be, looking at competitors like Caremark Rx (NYSE:CMX) and Medco Health Solutions (NYSE:MHS) suggests there's more potential for improvement.

The downside to this business is that the industry seems to be attracting more of the wrong kind of attention. Some have tried to suggest that pharmaceutical benefits managers actually inflate drug costs and there have been state-based legislative efforts aimed at these companies that could hurt profits (including measures requiring them to pass through all rebates or discounts to customers). There is also the matter that the top three players control over two-thirds of the market -- that's great from a competitive advantage standpoint, but not so great if it leads to increased regulatory scrutiny and oversight.

This is a tricky business to evaluate. On the one hand, the company has been delivering robust profits and the launch of Medicare Part D (drug benefits) could be a boon. On the other hand, present valuation is rich and it seems to me that a greater than 20% haircut would be in order before these shares would look like much of a value to me. Growth-oriented investors don't seem to care about my value concerns -- the stock is up almost 13% so far today -- and that's okay. Just remember, though, that with high growth and high valuation often comes higher-than-average risk.

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Fool contributor Stephen Simpson has no financial interest in any stocks mentioned (that means he's neither long nor short the shares).