Dawson Geophysical (NASDAQ:DWSN) turned in earnings earlier this week, and they were, in a word, spectacular. This earnings report was far better than I imagined. It offers us an object lesson of why sometimes contrarianism pays.

Over the past several months, Dawson's stock has slid down -- in March, it dropped below $24 per share. Both Wall Street analysts who cover Dawson have a "hold" rating on it -- and "hold" is Wall Street-speak for "get the heck out of this stock." The Standard & Poor's reports on the company are tepid, as were last quarter's earnings.

Meanwhile, in our last Motley Fool Hidden Gems Ratings & Rankings column, Dawson climbed ever higher. In our April issue, I rated the company as the best risk-adjusted buy, which makes this earnings report gratifying. It's another reminder that the temporary movement of the stock price is less important than the underlying value of the business. Often -- and this is doubly true for small caps -- a company and a stock are very different. After a sluggish start to 2006, Dawson is now up 16% since our December 2005 recommendation (non-subscribers can access with a guest pass).

The reason we're able to show such solid gains today is the very reason I am convinced that a business-centric investing methodology is such a powerful way to invest in the stock market. With Dawson, we focused on the company, then looked at the stock price, and saw a mismatch. People hated Dawson Geophysical at the very time when they should have been getting more excited. Were they influenced by the share price movement (both up sharply in the past two years but down sharply from its peak)? Dunno. Did they look at weak quarterly earnings last period and extrapolate? I think this gets more to the point.

A number of companies we follow, such as Dawson, OYO Geospace (NASDAQ:OYOG), YamanaGold (AMEX:AUY), Northgate Minerals (AMEX:NXG), and TransMontaigne (NYSE:TMG), sometimes have long lead times between the time they make capital expenditures and the time these expenditures generate revenues or profits. If you catch one in the middle, things can look much worse than they actually are. In the last quarter, Dawson took on a new 11th surveying crew and had some technical issues with a few of its older crews. As a result, it showed higher expenses and depreciation, with paltry revenue growth to show for it. Did either of these issues suggest a company that was faring poorly? No, not if you were paying attention. We even had some hints from competing companies' results that things were probably much better in Midland than the market had believed back in the dark days of March and February.

It's pretty rare, though, that the payoff comes as quickly as this. Earnings are up 87% gross, and 57% per share. Revenues (which are what I focus on with Dawson) increased 51%.

The best news in the entire report, however, was that Dawson is negotiating with WesternGeco, a Schlumberger (NYSE:SLB) subsidiary, to provide at least one Dawson crew with its Q-Land seismic data acquisition and processing system. This is a system that Dawson says is providing "superior imaging results" throughout the Middle East and North Africa. That's a hint as to how good the Q-Land surveys are: Dawson has a competing technology -- the ARAM ARIES system that is also used by competitor TGC Industries (AMEX:TGE) -- and yet raves about the Q-Land.

Schlumberger is in some ways the elephant in the room -- it has stayed out of the U.S. terrestrial business, but there's no law that says it has to. It's coming back, and Dawson is going to benefit as a result.

This will probably take some time. I hope we have shown that we here at Hidden Gems HQ are willing to be patient with this business and with the stock market gains it should provide us.

This column was adapted from the May 1 Hidden Gems Daily column. You can access the entire Hidden Gems service with a free 30-day guest pass.

Bill Mann does not own shares of any company mentioned. OYO Geospace and TransMontaigne are also formal Hidden Gems recommendations. The Motley Fool has a strictdisclosure policy.