In late September, shares of CryptoLogic (NASDAQ:CRYP), a leading Internet gaming software developer, plunged more than 35% when Congress announced a bill that would effectively ban online gambling in the United States. But with last week's earnings announcement, all signs indicate that this stock is an odds-on favorite to make it all the way back -- and then some.

Last Friday, the Toronto-based Motley Fool Hidden Gems selection said that top-line revenues increased 32%, thanks to organic growth in both its Internet poker and Internet casino fees. Q3 earnings per share grew 47%, attributable to better-than-expected revenues and a recovery in previously paid sales taxes. If not for a charge related to the company's proposed move to Ireland, diluted EPS would have improved nearly 80% from Q3 in 2005. Investors applauded the results by closing Friday's trading session up slightly more than 9%. However, the Motley Fool CAPS community certainly didn't need the blowout quarter for a bullish sentiment. Even after the ban was passed, CryptoLogic held on to its four-star rating -- for very good reasons.

For about the past five years, management has been determined to lessen its exposure to the uncertainty of the U.S. market, aggressively seeking to diversify both its customers and its geographic location. In addition to its "blue chip" roster of licensees domiciled overseas, such as William Hill, Overseas Internet Gaming Entertainment, and ukbetting, the company signed a major new licensee in Q3 -- Scandinavia-based Betsafe. As it stands today, 100% of its licensees' revenues are derived from outside the U.S. -- something that CryptoLogic has always anticipated (correctly) and astutely prepared itself for.

I'm a firm believer that online gambling is never going to go away. Gambling itself has been part of human existence for thousands of years, and when combined with the convenience of the Internet . fahgettaboudit! Sooner or later, more countries -- such as the U.S. -- will realize that regulation, and not prohibition, is the only sensible way to deal with the issue of online gambling. When they do, CryptoLogic's reputation as a rare company that is actually certified in many highly regulated markets will serve it well. In addition, CryptoLogic's rock-solid financials ensure that it has both the strength to withstand almost any "industry shakeup," and the flexibility to capitalize on any opportunities (as regulation increasingly becomes the norm). At quarter-end, CryptoLogic had a total cash position of $129.2 million, or $9.37 per share, with not a speck of debt. Talk about being prepared!

Now, of course, our CAPS community could be wrong, and it may turn out that CryptoLogic's growth prospects in Europe and Asia -- with well over 10 times the population of North America -- just won't be enough to make up for the shortfall of U.S. business. After all, there's also the possibility that management will end up wasting its cash hoard, or that the company will lose its reputation as the global standard in gaming software, or that different markets will continue to ban what is essentially a potentially lucrative, extremely popular tax-generating activity. Any of those circumstances would adversely affect the long-term shareholders of CryptoLogic. (But I'm not betting on it.)

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CryptoLogic is a Motley Fool Hidden Gems selection.

Fool contributor Brian Pacampara eats his own stomach-aching cooking and owns shares of CryptoLogic. The Fool has a non-encrypted disclosure policy.