Forget about Santa Claus keeping track of who's naughty and nice. Thanks to gear from the likes of Applied Signal (NASDAQ:APSG), our government intelligence agencies can make ol' Saint Nick look like a piker when it comes to keeping tabs on folks.

And hey, would you look at that? These guys actually exceeded analyst expectations at long last. That'll be a welcome change of pace for investors who've held this stock through a very tough year. While the stock started the year at more than $35, earnings disappointments, worries about the business, and generally muted enthusiasm for defense plays sent the stock nearly as low as $15 at one point.

Revenue for the quarter climbed an eye-popping 46%, with operating income rising by a similarly gaudy 31%. While the order book didn't really grow (down about 1% versus last year's level), it did improve significantly on a sequential basis and would have shown double-digit annual growth if not for business lost because of a stop-work order -- something that's not that uncommon among defense and intelligence contractors.

Not that I'm trying to rain on the company's parade here, but two items should be kept in mind when looking at the year-over-year performance. First, this quarter's results include $5.6 million in revenue from DTI -- a business that Applied Signal acquired around midyear. Second, this quarter benefited at least somewhat from business that slipped from earlier in the year. Still, revenue is revenue, and this was a solid quarter.

Of course, the big question here is what the future holds for intelligence and surveillance budgets. It seems to me that our national security does rest at least in part on continuing to spend money on better surveillance and intelligence technologies. Then again, Congress is often sensitive to the flavor of the month, and budgets could be cut if people get lulled back into a false sense of security.

And there's the matter of competition. Whatever money is earmarked for intelligence, surveillance, and reconnaissance, larger rivals such as Boeing (NYSE:BA), Harris (NYSE:HRS), L-3 (NYSE:LLL), and Argon ST (NASDAQ:STST) will fight for it.

Just as one bad quarter doesn't mean a company is doomed, one good quarter doesn't mean a company is back in the clear. Investors who dig deeper may find value here, but I'd advise caution, given the not-so-distant memories of sizable disappointment.

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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).