Make up your mind, Mr. Market.

When laser equipment maker and Motley Fool Hidden Gems recommendation II-VI (NASDAQ:IIVI) reported its first-quarter results for fiscal 2008 yesterday, investors threw a veritable hissy fit.

They seemed perturbed by the fact that the firm managed to meet analysts' desired $0.32-per share earnings estimate squarely, despite selling only $72.7 million worth of goods. (This further illustrates the patent silliness of the concept of a "revenue miss." Can someone please explain what's wrong with earning more by selling less?)

And today, with the market in free fall, what do investors do with II-VI? They bid it up 3%. Crazy.

Wrong yesterday, right today
So which face of the now-confirmed schizophrenic Mr. Market are we to believe? Personally, I think investors are getting it as right today as they got it wrong yesterday. Here's why, in a nutshell:

Reining in costs
II-VI grew its sales 20% year over year in Q1, translating that to 28% profits improvement, despite raw materials costs outpacing sales gains, 21% to 20%. The company accomplished this feat through stringent cost control. Selling, general, and administrative expenses grew a bare 7% -- but this story gets even better.

Remember how I complained about the dearth of research and development expenditures last year? Well, II-VI turned on a dime in Q1 and ramped R&D spending 50% year over year last quarter.

That's good news for two reasons. First, it shows that, just like at EMC (NYSE:EMC) earlier this year, an apparent disinterest in research has given way to strong investment in this tech company's future. Second, the fact that II-VI expanded its R&D spending yet managed to hold its operating costs increase to just 15% -- a slower rate than sales growth -- permitted margins to expand. At 18.2% for the quarter, II-VI's operating margin exceeds those of Rohm and Haas (NYSE:ROH), fellow Hidden Gems pick Rofin-Sinar (NASDAQ:RSTI), and Raytheon (NYSE:RTN), and is nearly twice that of DRS Technologies (NYSE:DRS).

Sales on the horizon
The other reason for optimism today is that we're seeing bigger things for tomorrow. Sales growth of 20% is swell, but even better is management's observation that it booked 27% more new business in Q1 2008 than one year ago. To me, that promises accelerated sales growth down the road, and with its costs contained, I think we can all guess what that means for II-VI's profits.

Is there more to the II-VI story? Actually, yes, there is. Get the latest on II-VI's plans for the future in our interview with II-VI CEO Francis Kramer. It's in Motley Fool Hidden Gems, which you can try out for free for 30 days.

Fool contributor Rich Smith does not own shares of any company named above. The Motley Fool has a disclosure policy.