While the past few months have left many small caps seeing red, HMS Holdings (NASDAQ:HMSY) has been spared. The company provides revenue recovery and cost containment solutions to government health-care programs and hospitals. With an average trading volume of only about 180,000 shares a day, the sound returns experienced by HMS shareholders have gone relatively unnoticed.

The company rang up $16.9 million in revenue for its second quarter ended June 30 and net income of $0.07 per diluted common share. These earnings topped its year-ago numbers of $13.3 million in revenue and net income of $0.06 per share. The company has seen its revenue grow by approximately 18% each of the past four years and expects its revenue to rise by 15%-17% in 2006.

The risk involved with this investment is that given the nature of the industry that the company is involved in, the majority of its revenue is derived from contingent fees. Fortunately for HMS shareholders, management has proved to be very proactive in seeking out new synergies and revenue streams.

At the end of June, the company entered an asset purchase agreement with Public Consulting Group (PCG) to purchase all of the assets used in PCG's benefits solutions practice area. This practice area generated approximately $46 million for the 12 months ended June 30. And while many of its client engagements are aimed at maximizing the portion of client expenditures that are recoverable from insurance carriers, HMS recently began its first project devoted solely to overpayment recovery -- with the Idaho Medicaid program.

Another positive for the business is that typically 45% to 50% of operating expenses is compensation. This reality enables the company to be fairly precise in forecasting its total operating expenses and also allows it the flexibility to meet projected earnings by adjusting the employee headcount according to expectations of future operating levels.

While the stock is thinly traded, I by no means view it as a flier. With Medicaid costs rising by an average of 10% annually, HMS can expect to see its business grow, as a significant amount of its work is done for state Medicaid programs. Its stock price has doubled since last summer, and with a history of consistent earnings and a solid management team that has a sound command over its business environment, this is definitely a stock for Fools to consider.

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Fool contributor Billy Fisher does not own shares of any of the companies mentioned.