Geo's Growth Unshackled

Since the end of last year, stakeholders in correctional facilities manager Geo Group (NYSE:GEO) -- the investors, not the prisoners -- have enjoyed a more than 40% rise in the company's stock. During that time, the company has steadily paid down its long-term debt, which the market previously considered a risk. Now this small cap continues to gain steam, after locking in another exceptional quarter of growth last week and announcing a 2-for-1 stock split.

The company's Q1 2007 pro forma income from continuing operations increased 84% to $9 million, or $0.43 per share, from $4.9 million, or $0.32 per share, in Q1 2006. Q1 revenues increased by 28% year over year, and Geo management has upped its estimate for full-year pro forma earnings to between $2.02 and $2.15 per share, from previously issued guidance of $1.90 to $2.05 per share.

Geo Group stands to benefit from crowded prison populations in many areas of the country, as state and local governments turn to private correctional-facility operators to meet excess demand. Management attributed its revenue growth in Q1 to new contract wins by each of its operating segments. The company continues to develop new facilities that will begin operations in the upcoming quarters to further aid future revenue growth.

The prison sector has favored investors recently, with Corrections Corporation of America (NYSE:CXW) also recently hitting a 52-week high. The company's operating income recently surged 28%, driven by many of the same factors as Geo Group, including revenue growth from new federal contracts. Brinks (NYSE:BCO), which provides home security and bank transport services, also hit a new 52-week high on a 13% increase in quarterly revenue.

Should investors keep their dollars locked up in Geo? If nothing else, it certainly beats being a customer.

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Fool contributor Billy Fisher does not own shares of any of the companies mentioned. The Fool's disclosure policy is always locked down.