Internet outdoor gear and golf-equipment provider Sportsman's Guide (NASDAQ:SGDE) has faced a stormy series of articles over the last year here at The Fool. Let's catch up with these guys.

Nine months ago, I wrote a strongly worded article pointing out management's desire to grant themselves even more options than they had. A few weeks later, Bill Mann was upset that after management had changed their minds about options, they wanted to issue more shares in a secondary offering while at the same time buying back shares. Shortly after the second- and third-quarter releases, Rich Smith wrote that they seemed to be getting back on course, but I reminded shareholders to keep an eye on management.

So how are they doing now?

Not bad at all, considering. They recently reported preliminary 2005 results: $285 million in sales and $1.37 diluted earnings per share (EPS) for a 22% and 45%, respectively, increase over 2004. Since they did not release cash flow information, the best we can do is trailing 12 month (ttm) from last September -- $11.28 million in free cash flow (operating cash flow less capital expenditures). They seem to be keeping their eye on business and using the relatively inexpensive online environment to drive solid earnings.

Not counting us Fools, only one analyst follows the company, according to Thompson First Call, and he expects annual growth of 20% over the next five years. Considering they have grown net income by 27% annually over the last three years, and that might not be too unreasonable.

However, it's not all a straight shot down the fairway for this firm. (OK, you come up with a substitute for "bed of roses" for this golf and camping company!) Dilution is still a problem, although it's probable that the overhang left over from 2004 is playing out. Compared to the split-adjusted number at the end of 2004, total diluted share count increased 6% to 8.46 million as of the end of the third quarter (diluted share count is not yet available for the end of 2005). Compare that to the "official" outstanding share count of 7.44 million, and you see the problem.

Given a current diluted ttm P/E of 19.2, that dilution translates into a 12% drag on the price. In other words, if there had been no dilution, the company would have been able to report EPS of $1.46 -- assuming no change in share counts from the third quarter -- which would place the stock price at $28 instead of its current $25 level.

As you might have gathered, I'm no fan of stock options, believing as I do that they're not the correct way to promote shareholder-like behavior in upper management. Don't get me wrong. Management for Sportsman's Guide has been doing everything right recently for the company and its shareholders. The stock has risen 60% in the last year, much to shareholders' delight. But just think what might have been without that option dilution...

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Fool contributor Jim Mueller does not own shares in the Sportsman's Guide, but that could change. The Motley Fool is all about investors writing for investors.