Motley Fool co-founder Tom Gardner made safety-products company Mine Safety (NYSE:MSA) a Motley Fool Hidden Gems recommendation in September 2003. He labeled it a bargain: Besides having strong growth opportunities, the stock traded at a reasonable 10 times free cash flow.

And a bargain it was. As of last night, the stock is up 137% since the recommendation, while the S&P 500 is up a mere 21%. Not impressed? Since the newsletter's inception, all of Tom's Hidden Gems recommendations are up 43% while the S&P has been able to manage only a 10% gain. That's big-league performance!

Mine Safety's latest earnings news is good. Fourth-quarter sales, compared with last year's fourth quarter, were up a healthy 20%, and net income from continuing operations scored a 16% gain. Both figures increased to record levels. If you exclude a one-time tax benefit in the fourth quarter of 2003, net income from continuing operations before taxes increased by -- get this -- 47%. That's a home run in any corporate board room.

The company, though, sounded a cautionary note about sales of military gas mask products and said that recent growth trends in overall military sales would not continue in 2005. But gas mask capacity, previously constrained by military orders, can now be used for homeland-security orders.

The stock is down almost 16% so far today. That's probably because analysts were expecting the company to earn $1.97 a share in 2004 -- six cents more than was reported. Also alarming is the 38.6% increase in inventories for the year. It will be enlightening to hear what the company has to say about that jump during today's mid-afternoon conference call.

What seems less noticed, for now, is that Mine Safety's operating margins in the fourth quarter increased 2.3 percentage points to 12.5%. A continuing trend, too, is more cash and a drop in long-term debt. Net cash (cash minus debt) now stands at $15.7 million.

The stock is now trading at 21 times trailing earnings. That's hardly expensive, given the company's strong balance sheet, diversified product portfolio, and expected earnings increase in 2005. In this writer's opinion, the market has overreacted to what was a strong quarter and has presented patient investors with a buying opportunity.

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Fool contributor W.D. Crotty does not own stock in Mine Safety.