Shares of educational-software specialist Blackboard (NASDAQ:BBBB) tumbled this morning, but for the life of me, I can't see why. After all, Blackboard grew its sales in the second quarter by 27%. It crushed earnings estimates of $0.12 per share with a pro forma showing of $0.22. And it turned in positive earnings under GAAP of $0.03 per share.

Granted, that last number was down 75% from last year's Q2. But GAAP has never been particularly helpful with this company, anyway. The accounting effects of large acquisitions have tended to -- ahem -- erase Blackboard's GAAP profits with distressing regularity.

What's most interesting about the report is Blackboard's assertion that "sales during the quarter were particularly strong in the U.S. higher education market." Given the rash of recent disappointments among companies -- see Spartan Motors (NASDAQ:SPAR) and Oshkosh (NYSE:OSK) -- tying their fortunes to states and localities with tax collection "issues," I honestly expected to see some weakness here.

The contrary proved true. To a customer list that already includes stalwarts DeVry (NYSE:DV), ITT Educational (NYSE:ESI), and Strayer (NASDAQ:STRA) -- and partners Google (NASDAQ:GOOG) and Discovery as well -- Blackboard continued signing up state community colleges, K-12 school systems, and even statewide educational departments in droves.

Nor was last quarter's performance the sole reason for optimism. Management guided investors to numbers slightly ahead of analyst predictions for both Q3 and the full fiscal year -- about $83 million in revenue for the former, $314 million for the latter. Likewise with pro forma profit predictions -- $0.19 for Q3 equals Wall Street's best guess; $0.75 or so for the full year would beat the Street by a dime. (Management projects GAAP earnings -- for the little that they're worth -- at about zilch for Q3 and $0.03 for the year.)

Finally, management tells us it will generate somewhere between $75 million and $80 million in cash flow this year, which allays some concern over the fact that cash flow is currently negative through the end of the first half.

Foolish takeaway
If you run-rate the company's first-half capital expenditures out through the end of fiscal 2008, that gives us free cash flow of at least $40 million and a price-to-free cash flow ratio of about 29. Sure, that looks like a slight premium to analyst projections of 26% growth in the long term. But considering that Blackboard has exceeded such predictions in each of the past three quarters, I'm willing to give it a pass on that.

Related Foolishness:

Does the Motley Fool Hidden Gems team agree? They're the ones who recommended the stock in the first place, after all. Find out whether they still consider this one the teacher's pet when you take a free trial.

Google is a Motley Fool Rule Breakers recommendation.

As promised, Fool contributor Rich Smith bought shares of Blackboard after the last sell-off, just as soon as The Motley Fool's disclosure policy allowed. He owns them still.