Building on its growth-by-acquisition strategy, engineered industrial products manufacturer Roper Industries (NYSE:ROP) turned in another quarter of growing revenues, profits, and cash flows. Yet because the stock has come so far so fast this past year -- it's up some 40% -- analysts speculated that further share-price growth might be constrained, and the markets promptly knocked it back 5% on Friday.

Roper, which makes products for the water, energy, radio-frequency, and scientific-imaging fields, said first-quarter earnings grew 31% on revenues that increased 15% to $383 million, while operating cash flow increased 42% over last year. Roper also raised full-year guidance by a penny, to a high end of $2.08 per share.

Since 2001, Roper's acquisitions have accounted for more than 50% of the company's revenues; in the latest quarter, organic growth amounted to 10% of the revenue increase. That's respectable, but it still shows Roper's reliance upon buying other companies. In particular, Roper's acquisitions in the RFID field have been paying off. Where the company had turned in sales of $409 million for the entire year last year, first quarter-sales were already $108 million, a 17% increase against the same period in 2005. Its imaging segment, where it makes products for the scientific and industrial fields, grew some 56% this quarter on the strength of several acquisitions it made last year.

The company's performance in 2005 led Roper to reward its CEO handsomely. With a base salary of $850,000, Brian Jellison was rewarded with a $1.5 million bonus, as well as $6.4 million in restricted stock, nearly double the $3.3 million worth he was awarded in 2004. Roper's proxy says corporate compensation policy is designed to "attract, motivate and retain" executives. Undoubtedly Jellison is quite motivated, but at least unlike at some other companies, Roper's stock performance can somewhat justify the awards.

Yet there may be conflicts afoot in Roper's management compensation practices. Jellison alone determines incentive awards to be granted to participants in the plan, except for executive officers. Roper says that awards need to be doled out more often than the board's compensation committee meets, so it created a committee of one -- Jellison -- to determine who gets what and how much.

It's hard to see why they needed to do this. Roper's compensation committee met five times during 2005, about once every 10 weeks. They need to provide incentives to managers more frequently than that? Some other companies' compensation committees meet less often than Roper's does, yet they haven't seen the need to allow their CEOs to determine the awards offered.

As Roper has transformed itself from a holding company to an operating company, its performance has improved steadily. With a significant $67 million of cash on its books, it plans to keep on making acquisitions, a pipeline it views as "exciting." That's fine, as long as it continues to digest those new companies without problems; I've found that a steady diet of mergers makes for indigestion somewhere down the road. Roper also has some $587 million in long-term debt, though it has paid it down $33 million since last year.

Trading at 25 times enterprise value-to-free cash flow, Roper is not bargain-priced, even after Friday's setback. Although its acquisition strategy might be working for it right now, investors might want to be cautious about how well it can continue to assimilate new businesses.

Fool contributor Rich Duprey does not own any of the stocks mentioned in this article. You can see his holdings here. The Motley Fool has a disclosure policy.