Kendle International (NASDAQ:KNDL) shares caught fire Monday, jumping almost 36% after the provider of contract research services disclosed fourth-quarter and 2004 results. The company's momentum does indeed appear to be building, although some caution is warranted when considering the stock.

Kendle reported that net revenue climbed 20% to $48 million in the fourth quarter, while net income shot up 307% to $2.1 million. For 2004, Kendle's net revenue grew 10.7% to $172 million, while the firm's earnings came in at $3.6 million vs. a loss of $1.7 million last year.

It's clear that Kendle is showing some vitality. Still, it's not surprising that the firm's business is ramping up. After all, the environment for drug research services is solid, as biotech companies that have ready access to financing and pharmaceutical giants continue to accelerate outsourcing. This rising tide is lifting many boats. For example, Kendle's rivals, PPD (NASDAQ:PPDI) and PAREXEL (NASDAQ:PRXL), also have been turning in solid results. In fact, the surge in Kendle's stock is primarily a product of the firm's long-time status as an also-ran in the contract research business.

The key now will be for Kendle to keep its recovery going. As a small company, it has to be concerned about relying on too few customers for its revenue. Project cancellations are fairly common in the contract research business. As a result, a company with just a few large projects from a small number of customers can be seriously disrupted if one or two of those clients suddenly scraps a program.

Kendle has made progress in minimizing any single customer's impact on its top line: In 2004, its largest customer accounted for 20% of revenue, compared to 27% in 2003 and 29% in 2002. Still, Kendle has to be vigilant. In its fourth quarter, 74% of net new business wins came from its top five clients.

At the moment, though, there is reason to be optimistic. Kendle's business authorizations hit an all time high of $240 million in the fourth quarter, and 2005 earnings are forecast to reach between $0.54 and $0.60 a share, compared to $0.27 in 2004. These projections have to command investors' attention.

Check out these related articles:

Fool contributor Brian Gorman is a freelance writer in Chicago. He does not own shares of any companies mentioned in this article.