The world has come a long way since former Secretary of State Henry Stimson shut down America's code-breaking spy efforts in the late 1920s with the comment that "gentlemen do not read other gentlemen's mail." While employers may not yet be trying to read employee mail, they are certainly interested in listening in to their phone conversations.

This is where Israel's NICE Systems (NASDAQ:NICE) comes into the picture. Focused on providing integrated digital multimedia recording systems, NICE allows companies to monitor, record, and analyze a range of communications, including phone conversations, fax transmissions, and video surveillance.

Revenue was up 13% in the fourth quarter to $69.5 million, and EPS grew 27% to $0.47 a share. Free cash flow for the year totaled $38 million -- 17% higher than the year-ago level.

There are numerous reasons for companies to adopt NICE's monitoring systems. While financial organizations can use recorded conversations to meet compliance requirements and defend themselves from possible lawsuits, sales or service-oriented call centers benefit as well. NICE's platforms can analyze recorded conversations to the level of specific phrases and their impact on customer response -- allowing sales or service departments to more effectively train their workers for optimal productivity and customer service.

NICE also offers products for digital video monitoring/recording, and this looks to be a major growth opportunity. While most businesses have limited needs for video surveillance (other than casinos), governments could be major customers.

With advanced video surveillance and analysis, government entities could perform detailed threat detection, suspect identification, and traffic analysis through unobtrusive cameras mounted in sensitive areas like airports, shipyards, or other installations at risk of terrorism.

The stock might require further surveillance and analysis, though, since it has aspects both naughty and nice. Though the stock has a trailing P/E of almost 27 (naughty), the enterprise value-to-free cash flow ratio is only a bit above 12 (nice). The company has strong partners like Motorola (NYSE:MOT), Avaya (NYSE:AV), and IBM (NYSE:IBM) (nice), but is forecasting revenue growth of only 9-11% for 2005 (naughty).

With such a mix of good news and bad news, but an undeniably large and growing market, NICE at least bears watching for Fools who don't mind profiting from gentlemen (and ladies) who listen to other gentlemen's calls.

Fool contributor Stephen Simpson, CFA, has no ownership interest in any stocks mentioned.