"The trend's your friend," goes the old investing saw, but reviewing IPG Photonics' (Nasdaq: IPGP) Q1 earnings brings to mind another chestnut: "With friends like these, who needs enemies?"

Oh, don't get me wrong. Viewed in isolation, IPG turned in an amazing quarter, and one that has amply rewarded faithful Motley Fool Rule Breakers members who've stuck with it through thick, thin, and multiple appearances on our "Best Buys Now" list. Since earnings came out, the stock is up 19%, and rising. But is this just a "relief rally," or does IPG's latest run have legs? Let's find out.

This trend's no friend ...
Starting at the top (of the income statement), we find IPG reporting 27% sales growth. While objectively amazing, this marks the latest step in a long-term trend of slowing sales -- 37% sales growth in Q2 2007, then 32% in Q3, 31% in Q4, and now 27% in Q1 2008. Forgive me if I hold the applause.

Also undeserving of accolades -- profits. While again strong in and of themselves, profits growth of 23% compared to the year-ago quarter undershot sales gains, confirming that IPG's long-term trend of contracting profit margins, too, remains unbroken. The company's 23.7% operating margin is about what the more diversified Corning (NYSE: GLW) earns in its business, and compares favorably to rivals Coherent (Nasdaq: COHR) and JDS Uniphase (Nasdaq: JDSU).  It even beats out a couple other Fool picks -- namely laser maker Rofin-Sinar (Nasdaq: RSTI) and laser parts provider II-VI (Nasdaq: IIVI). But the margin is nonetheless down 280 basis points year over year.

... in more ways than one
Meanwhile, all is not well on the working capital front. Free cash flow for the quarter once again looks to have been of the "negative" variety. Management did not include a cash flow statement with its report, and with the 10-Q still en route, we have to work from management's vague disclosure that operating cash flow came to $5.4 million in Q1, before being eaten up by "capital expenditures and investments in intangible assets of $13.0 million."

... and it's ongoing
Finally, a word on guidance. Management made happy sounds about "growing acceptance of fiber lasers," "robust growth" generally, and "pulsed laser sales [that] increased 73% over the prior year" in particular. But from where I sit, guidance of about $54 million in Q2 sales and $0.17 per share in profit just confirms where IPG is heading. 54 mil. is 23% year-over-year sales growth; 17 cents is 21% growth in earnings. In other words, down, down, down.

Does the hypergrowth crowd at Motley Fool Rule Breakers agree? I rather doubt it. Take a free trial of the service, and maybe they can shed some light on what I'm missing.

Fool contributor Rich Smith does not own shares of any company named above. The Fool owns a few shares of IPG Photonics. Rofin Sinar and II-VI are Hidden Gems picks. The Motley Fool's disclosure policy shines brightest before the dawn.