In the months and years since 9/11, we've caught glimpses of the war on terror from scenes captured on film and displayed on the TVs in our living rooms. But there's also a silent war going on -- a secret one that you and I may never appreciate. One of the actors in this shadowy world is Applied Signal (NASDAQ:APSG).

This company specializes in equipment that collects and processes telecommunication signals. It can scan transmissions sent from devices like cell phones and then decipher useful information that might be used to impede the efforts of the bad guys.

Applied Signal's largest customer is the U.S. government, followed by foreign allies. Naturally, you and I won't be able to pick up one of these Mission: Impossible instruments at our local Best Buy. But we can sneak a peek at its stock.

After bottoming out in 2001 in the low single digits, Applied Signal shares flew up to nearly $40 in late 2004. From these heights, however, the stock has spiraled south. The latest single-day drop of over 17% sends a not-so-secret signal that the market has lost its taste for the company.

What happened to this one-time darling? When The Motley Fool checked in on the company a year ago, the enterprise was zipping across the radar screen with its stellar growth. The growth continued throughout 2004, but ever since a warning signal went out suggesting that the company may have been carrying too rich of a valuation, the stock has lost more than 50% of its value.

Let's see whether we can pick up a few signals from the company's latest results. Revenues for its fiscal second quarter declined 12.8% to $32.1 million, compared with $36.8 million from a year ago. New orders took a more substantial hit, decreasing 25.5% to $21.3 million.

Sales weren't the only thing feeling the heat. Operating margins were pressured, dropping from last year's mark of 12.8% to the most recent level of 11.6%. To make matters worse, the effective tax rate soared to 41% from 19% because of a tax-provision credit in the previous quarter.

Lagging sales, sagging profit margins, and an increased tax rate are a recipe for bottom-line disaster. For Applied Signal, income took a sharp 41% drop to $2.3 million.

Not only did shareholders have to deal with struggling results, but they were also given a double-dose of a Homer Simpson "Doh!" when the company also announced that it will acquire Dynamics Technology for $30 million in cash.

Such is the nature of the defense business: gun-barrel hot one day, MRE (meals ready-to-eat) cold the next. But despite the recent hiccup, the company is still expecting brisk sales from the U.S. government.

But Foolish investors want to be in a position that gives us the best chance to beat the market average. And the sensitivity of Applied Signal's business makes it difficult to accurately estimate revenues going forward.

It's clear that with declining sales, and our inability to project revenue growth going forward, potential investors need to expect a deep bargain before buying. Do your best impression of a secret agent: Do some extra investigative work on the company, and when the time is right, sneak up on this stock.

Best Buy is a past Motley Fool Stock Advisor recommendation. Fool contributor Jeremy MacNealy does not own shares in any of the companies mentioned.