Correct me if I'm wrong. Recessions are supposed to be bad for business, right?

"You're wrong."
So said Blackboard (NASDAQ:BBBB) Thursday, in effect, when in the middle of one of the worst recessions in recent memory, the educational-software provider and Google (NASDAQ:GOOG) partner closed out its year with a report of accelerating sales growth. Overall sales for the year had already risen by 30%, but in Q4, Blackboard revved up to a 35% growth pace.

Profits told a different story, of course. Blackboard earned only $0.09 last year, down 36% from 2007. But that's because Blackboard is a software company. So just like Microsoft (NASDAQ:MSFT) or Oracle (NASDAQ:ORCL), its income statements generally lead off with high gross margins that then get whittled down by operating costs.

In Blackboard's case, the big hit comes from GAAP accounting rules that require it to amortize the cost of its serial acquisitions from years past. And as we've seen following big acquisitions at Symantec (NASDAQ:SYMC) and Natus Medical (NASDAQ:BABY), the cost of amortizing acquisitions can suck up essentially all of a company's net income. Blackboard, as a result, is left with little-to-no "accounting profit."

Dig deeper
But shift your gaze to the cash flow statement, and you'll see that far from earning nearly nothing, Blackboard generated $55.8 million in cash profits last year. Blackboard's hogtied GAAP numbers may have the stock trading at a triple-digit price-to-earnings ratio, but the stock sells for only 16 times its trailing free cash flow. Considering that analysts expect Blackboard to keep growing its profits at 25% per year over the long term, that tells me the stock is attractively priced today -- but how long will it take for investors to realize just how cheap Blackboard really is?

Not long now
According to management's guidance, amortization of old acquisition costs this year will be about 25% less than last year. That's going to do wonders for Blackboard's GAAP numbers, by removing the pressure on net profits. With lower costs, GAAP profits could rise as much as eightfold next year, to perhaps $0.72 per share.

Foolish takeaway
Assuming that this comes to pass, Blackboard is trading at about 40 times forward profits today -- a valuation that still looks pricey from a traditional PEG point of view. But with free cash flow still on the rise (Blackboard is guiding to a midpoint of $65 million), the stock actually looks cheap to me. My advice: Bide your time, wait for investors to misinterpret the numbers, and pick up the stock on any pullbacks from Thursday's bull run.

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.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.