Telecommunications is the lifeblood of modern society. Think about how crippled mankind would be without all the telecom gadgets. Think about the convenience technology has delivered to our lives. Unfortunately, these same advances have also allowed terrorists to more easily carry out their heinous acts. There is always bad that comes with the good.

But with telecommunications has also come the ability to spy on terrorists. While the more hysterical among us might wonder if the U.S. government is using the Patriot Act to spy on its own citizens, the truth is it is much more interested in the real villains who want to harm us.

Enter Applied Signal Technology (NASDAQ:APSG). With every advancement comes a new market, and Applied Signal fills a need in the area of signal processing. It focuses on the collection and processing for the intelligence community.

Yes, its stuff is used for spying.

Its signal collection equipment can scan through thousands of cellular telephone, microwave, ship-to-shore, and military transmissions and collect what James Bond and company are most interested in. It's sophisticated stuff to be sure, but Applied Signal has made a real go at it. The company is a $400 million market cap business, predicted to earn 37.5% more this year than last and to grow this year's figure by 16.4% in the year to follow. Its balance sheet has $45 million in cash and no debt, and the company has positive cash flow.

I would like to support the war on terror by investing in a company like this, but a firm trading at 41 times trailing 12-month free cash flow is just a little too pricey for my taste. Also, 92% of Applied Signal's business comes from the federal government. Of that revenue, 84% comes from intelligence agencies and another 14% from the military. It's pretty much been that way since the company's founding in 1984. I know it can't help it, and that the government isn't likely to stop patronizing it anytime soon, but having such a government-dependent revenue source makes me skittish. Plus, while I'm happy to see the federal government is a steady customer, Applied Signal also has competition from L-3 (NYSE:LLL), Boeing (NYSE:BA), Raytheon (NYSE:RTN), General Dynamics (NYSE:GD), Lockheed Martin (NYSE:LMT), and Northrop Grumman (NYSE:NOC). Those are some pretty heavy hitters.

For now, investors may want to watch and listen to Applied Signal's quarterly reports and stock price, and wait until they find a more attractive entry point. Listen. Plan. Attack. It works for the military and for stock investing, too.

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Fool contributor Lawrence Meyers does not own shares in any of the companies mentioned; however, he wears a tin foil hat to keep the spies from reading his thoughts.