Kendle (NASDAQ:KNDL) continued its hot streak with another quarter of enviable growth. What's more, the contract research outfit seems poised to keep up its strong performance in the near term. However, as a smaller player in the space, the company carries particular risks, and this means it bears close monitoring.

The Cincinnati, Ohio-based provider of clinical drug testing services turned in net revenue of $59.8 million for the first quarter, a jump of 25% from the same period last year. Net income surged 128% to $4.9 million. On a per-share basis, the increase was 119% to $0.35. Kendle's bottom line was helped by an impressive increase in operating margins, which leapt to 12.2%, up from 9.8% in the fourth quarter and 6% in the first quarter of 2005.

Looking ahead, Kendle seems to be in a good spot. Total business authorizations, which include signed deals and verbally awarded contracts, hit $342 million -- an all-time company high. However, it's important to note that the pace of growth slowed a bit this quarter. Business authorization growth from Q4 2005 to Q1 2006 was 5.9%, off from 6.7% for the comparable 2004-2005 period. Admittedly, the first quarter is typically a slower period for the industry, so this isn't a reason to panic. However, business authorizations are worth watching in the coming quarters.

Kendle also continues to diversify its customer base, which helps lower the risk that earnings will take a major hit because of a cancellation or delay with a single customer. Even so, Kendle is still somewhat vulnerable to this problem. Its largest customer accounted for 11% of revenue in the quarter -- a much-reduced level from previous quarters, but still enough concentration to cause a disruption if there are problems with that client.

In conclusion, Kendle seems like a safe bet in the near term. But as a smaller player in a competitive and sometimes volatile space, the company requires a heightened level of vigilance.

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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.