As Foolish investors, we don't have the luxury of playing Clydesdale with our companies. We cannot risk donning blinders, focusing solely on the stocks we own, and ignoring the competition.

And so it is that while we've recommended American Science & Engineering (Nasdaq: ASEI) to our members at Motley Fool Rule Breakers, we're also keeping a close eye on AS&E's competition. Much as we'd prefer that AS&E had the port-and-airport security market to itself, plenty of other companies are out there devising competing ways to protect good guys from bad guys smuggling bad things. GE (NYSE: GE), for one, which owns bomb-sniffer InVision. L-3 Communications (NYSE: LLL), with its ProVision millimeter wave imaging portal, is another. And there's also the subject of today's column, OSI Systems (Nasdaq: OSIS) and its Rapiscan, which reported earnings last week. Here's what the competition is talking about.

Sales for the fiscal third quarter jumped 24%, and gross margins rose more than 100 basis points to 36%, helping profits nearly double to $0.39 per share. Numbers like these would ordinarily spark a similar jump in a company's shares -- but that's not happening at OSI. Why?

My guess is that it's the story (actually, stories) behind the numbers that are robbing OSI of its expected reward. First off, a series of one-time items obscured the import of the results. In both fiscal Q3 2008 and fiscal Q3 2007, OSI enjoyed various tax benefits that inflated its numbers, as well as restructuring charges that deflated them. But if we look past the GAAP mishmash and focus on cold, hard free cash flow, we can see that the quarter still worked out well for OSI. The company generated $1.8 million in positive free cash flow last quarter, a 38% increase from the $1.3 million posted at this time last year.

On the other hand, there was bad news to report as well. Namely, the fact that backlog dropped a bit in comparison to the prior quarter, down to $219 million. While that marks a small (5%) increase over the year-ago level, it's not nearly as significant an increase as OSI posted in sales.

Foolish takeaway
So why is OSI down since the announcement? Not because of what the company accomplished last quarter, which was good -- but rather because of fears of what will happen tomorrow. Backlog is not growing fast enough to support the recent level of sales growth, which suggests a slowdown may be imminent. My guess, therefore, is that investors are jumping ship before the bad news hits.

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American Science & Engineering is a Motley Fool Rule Breakers pick. Try this market-beating publication free for 30 days.

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