Israeli-based defense concern ElbitSystems (NASDAQ:ESLT) checked in with third-quarter earnings before the market's opening bell on Nov. 15, delivering $0.35 per share on net income of $14.6 million. Those figures -- which include the impact of a $1.2 million research and development charge -- represent solid ticks up over the year-ago period, when the firm doled out $0.32 per stub on income of $13.3 million.

Elbit, as you might expect, waxed enthusiastic in its announcement, touting a record quarterly revenue figure of nearly $274 million -- a 22.3% increase over last year's number. The company boasts a huge pipeline of backlogged orders, too, most of which come from its international customers.

Indeed, in the announcement, the firm's president and CEO Joseph Ackerman pointed to major deals with the U.K. and the U.S. Marines that hit the books after the quarter's end. Those will presumably help bolster the firm's fourth-quarter bottom line, but investors weren't much impressed, sending the company's shares down roughly 2% on the day of the announcement.

Why are investors shrugging their shoulders at what appears to have been a solid quarter? And, why, exactly, are the company's shares off by roughly 11% year to date?

For starters, Elbit is a small player in an industry dominated by titans, such as General Dynamics (NYSE:GD), Northrop Grumman (NYSE:NOC), Boeing (NYSE:BA), and Lockheed Martin (NYSE:LMT). Its market cap is less than $1 billion, so the firm is especially sensitive to the ebb and flow -- and, let's just go ahead and say it, the shameless politicization -- of defense spending.

Secondly, there's the matter of the company's efforts to grow revenues through acquisitions. I'm more of an organic-growth man myself, but I'm not blind to the sometimes Foolish wisdom of growth through acquisitions. Still, it's worth noting that the aforementioned $1.2 million R&D charge Elbit took was related to its purchase of additional shares of Tadiran, a Tel Aviv-based communications equipment maker.

There's a lesson to be learned there. Should Elbit turn out to be a "serial acquirer" -- and Ackerman has been candid about wanting to buy certain government-owned defense operations -- the charges associated with digesting those acquisitions could become regular features of the company's future earnings announcements.

Last but not least: While Elbit's stock has been an industry outperformer over the past five years -- and a steady dividend payer to boot -- its year-over-year performance has been erratic. Indeed, Elbit rose by nearly 60% during 2004, only to hit the skids thus far in 2005.

Does that make it a bargain? Possibly. On a trailing 12-month basis, Elbit currently trades at a price-to-earnings and price-to-sales discount to both its industry and the broader market. Considering its size and history of volatility -- not to mention a long-term growth rate that falls below those of its rivals -- some might argue that that discount is deserved.

Count me among them.

The Fool plays defense:

Shannon Zimmerman runs point on The Motley Fool's Champion Funds newsletter service and owns none of the companies mentioned above. You can check out the Fool's disclosure policy by clicking right here.