Calling KendleInternational's (NASDAQ:KNDL) recent performance a comeback would be an understatement. The merger of its two chief clients Pfizer (NYSE:PFE) and Pharmacia back in 2003 contributed to a long slump. But with year-over-year earnings per share in the first, second, and third quarters up 220%, 400%, and 500%, respectively, it's safe to say the contract research services provider is back in the pink.

A close analysis suggests that Kendle remains on the right track. After years of achieving growth through acquisitions, the firm is now squarely focused on putting its house in order and attracting a broad client base. Nevertheless, if Kendle is to compete over the long term, it may be forced to pursue purchases again.

For the third quarter, Kendle indicated that revenue increased 20% to $51.6 million and earnings jumped to $3.4 million, or $0.24 per share, from $0.6 million, or $0.04 per share. The revenue growth is being fueled by more customers spending more money. The top five clients contributed 34% of revenue in the quarter, compared to 39% in the third quarter of 2004. Meanwhile, the firm's biggest customer accounted for 13% of sales, compared to 21% in the same period last year.

As for the bottom line, Kendle has made progress improving operating margins, which reached 10.7% in the quarter, up from 4.5% in last year. The company warned that margins may be volatile over the next two quarters, but reiterated its commitment to raise operating margins to the mid-teens. The robust demand it's enjoying should help Kendle make good on its promise. New business authorizations, consisting of signed contracts and verbal agreements, reached an all-time high of $300 million in the quarter.

Despite the vibrant growth and its operational progress, Kendle still is at a disadvantage to larger rivals like Charles River Laboratories (NYSE:CRL) and PPD (NASDAQ:PPDI). These companies, with their array of services and worldwide reach, may be more attractive partners than Kendle for giant pharmaceutical companies that need to run large-scale global trials. For Kendle, the only way to compete over the long haul may be to return to its old acquisitive ways.

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Fool contributor Brian Gorman is a freelance writer in Chicago. He does not own shares of any companies mentioned in this article.