Last Thursday, Sigma-Aldrich (NASDAQ:SIAL) released its third-quarter results. And although the numbers looked fairly good for this company, whose business is based primarily on consumables for the biotechnology, academic, and pharmaceutical industries, the Street reacted by dropping the share price 1.4%.

Investors like to see numbers like these. Sigma-Aldrich touted a sales increase of 7.1% and an earnings increase of 8.5%. Future guidance for earnings per share was raised by a nickel; the company now expects to earn between $3.95 and $4.05 this year.

Mr. Market, however, must have noted that the raised forecast was based more strongly on increasingly favorable tax and currency exchange rates than on operations. Or maybe he noticed that sales for the quarter were slightly lower than consensus estimates. Or that profit margins have continued to shrink. Perhaps he even saw that the company reported a slow adoption rate for some of its newer products selling in the higher-margin biotechnology realm.

Metric TTM 2005 2004
Revenue $1,743.5 $1,665.5 $1,409.2
Gross Profit $884.2 $848.5 $751.6
Gross Margin 50.7% 50.9% 53.3%
Earnings $262.5 $258.3 $232.9
Profit Margin 15.1% 15.5% 16.5%
Dollar figures in thousands.

But I see much to like in Sigma-Aldrich. For one thing, growing dividends have always attracted me. The company pays a modest yield of 1.1%, but its annual payout has grown from $0.33 per share five years ago to $0.84 per share today, an increase of 155%. The dividend has room to grow, too, since it currently represents less than 20% of operating cash flow.

Secondly, the company has been steadily buying back shares, more than offsetting dilution caused by stock options for management. Diluted share count has steadily dropped from 71.1 million at the close of fiscal 2003 to 67.1 million currently outstanding. The combination of increasing dividends and decreasing share count is a powerfully investor-friendly combination, and it's virtually unheard of within biotech.

As noted in a previous article, Sigma-Aldrich compares quite favorably with its industry peers in relative valuation. The declining profits are a concern, but some improvement has already been shown in the gross margins. Should these profitability metrics show continued improvement, I'd be inclined to give Sigma-Aldrich serious consideration as an investment. For now, I am content to simply be bullish on the company in Motley Fool CAPS, where SIAL enjoys a three-star rating and has 13 players bullish on its prospects, versus only one bear.

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Fool contributor Ralph Casale (current CAPS rating 52) is a biochemist by trade and holds no financial position in any of the firms mentioned. The Motley Fool has a disclosure policy.