Amid a generally jubilant day for stocks, tiny defense contractor Argon ST (NASDAQ:STST) regained some of its composure on Friday -- not to mention some of its losses incurred in Thursday's post-earnings meltdown. But why did the losses happen in the first place?

Argon operates in the field of "command, control, communications, computers, combat systems, intelligence, surveillance, and reconnaissance systems" -- abbreviated "C5ISR," for obvious reasons. It doesn't play major-league ball in the defense-contracting field, although it does consider Northrop Grumman (NYSE:NOC), Boeing (NYSE:BA), General Dynamics (NYSE:GD), Lockheed Martin (NYSE:LMT), and Raytheon (NYSE:RTN) its competitors.

However, the $341 million in revenue that Argon booked in fiscal 2008 would barely amount to a single respectable contract win for Northrop or Boeing. And the 9.4% operating margin Argon earned on these revenues would earn a sniff of disdain from more profitable operators General D, Lockheed, or Raytheon, all of which are more profitable operators.

Still, fighting within its own weight class, Argon compares well to, say, Allied Defense, and it does about as well as Esterline Technologies (NYSE:ESL) in terms of operating margin. It's on the upswing, too. Those $341 million in sales represent a 21% improvement over fiscal 2007. And the year's profits rose by 42%, to $0.92 per share.

The good news doesn't end there. Argon tells us that it took $375 million in new orders last year. That's more than it booked in revenue for the same time frame -- an implication that sales will grow in years to come. In fact, Argon is looking for some $385 million in revenue this coming year, and about $36 million in operating profit -- in each case, about 13% better than it did in fiscal 2008.

So I repeat: Why the sell-off?
My guess is that the problem is not with Argon's performance, but rather its price. You see, 13% growth is all well and good, but analysts are looking for 15% growth out of Argon. Worse, Argon's selling for a trailing-12-month price-to-earnings ratio of about 20, a figure that seems to imply even more optimistic assumptions -- assumptions that Argon failed to prove were well-founded with last week's guidance.

Foolish takeaway
Argon turned in a fine quarter, and a fine year, last week. If the price were a bit better, I might tell you that this good news justified buying the stock today. But it isn't, so I won't.

The Fool has written about Argon precisely once before:

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.