The Iraq war is winding down and support for further engagement in Afghanistan is on the ropes. Yet Force Protection (Nasdaq: FRPT) refuses to die.

To the contrary, the maker of armored cars used in "hot zones" like Iraq and Afghanistan reported second-quarter earnings yesterday, and it's showing surprising signs of life. Even as Pentagon spending slackens and revenues fall, Force managed to ink new vehicle sales, find and ford new revenue streams, expand profit margins, and produce a seven-fold increase in profits.

Earning $0.07 per share in its second quarter, Force promised investors a similarly strong second half of 2010 and boasted of having "important momentum as we move into 2011." How, a Fool may inquire, is it doing it?

Firstly, by seeking new armored vehicle contracts abroad. Earlier this week I mentioned the company's entries in the U.K.'s Light Protected Patrol Vehicle competition and Australia's PMV Light contest. Now Force confirms it's also in the running for a projected 600-vehicle buy by Canada, submitting two variants of its popular Cougar MRAP for consideration in Canada's Tactical Armored Patrol Vehicle program.

Meanwhile, despite meeting a string of defeats at the hands of rivals Navistar (NYSE: NAV) and Oshkosh (NYSE: OSK), Force hasn't surrendered here at home, either. The company recently submitted its Joint All-Terrain Modular Mobility Asset (JAMMA) for consideration in the Air Force's Guardian Angel Air-Deployable Rescue Vehicle program, which calls for armored cars small, light, and tough enough to be loaded onto Textron (NYSE: TXT) and Boeing's V-22 Osprey and airlifted into battle. (Hedging its bets, Force mentioned that JAMMA could just as readily meet the needs of special ops forces from other buyers worldwide.)

Valuation
Still, given Force's history of losing big-name contracts to bigger rivals, investors are probably right to discount its chances of winning the above competitions. But even so, Force says its "modernization, spares and sustainment" business by itself "should support $400 million to $500 million of recurring revenues" annually. Meanwhile, Force targets a conservative long-term gross margin of 20% (it made 23% last quarter) on these sales. Larger defense contractors like General Dynamics (NYSE: GD), Lockheed Martin (NYSE: LMT), and L-3 (NYSE: LLL) routinely pull down margins below that, but sell for much higher price-to-sales ratios.

This suggests to me that Force Protection's stock sells for a significant discount to its true worth. The larger contractors have a long history of success and several recurring contracts. However, Force's vehicles should have a long shelf life of their own. Modernizing vehicles will become a focal point as the military looks to cut costs. Posit $450 million in annual sales and apply a 1-times valuation to this number, and the stock should trade as much as 50% higher than it does today. Toss in even a single win in the contracts it's competing for, and ... well, you do the math.

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General Dynamics is a Motley Fool Inside Value selection. Fool contributor Rich Smith does not own shares of any company named above. The Motley Fool has a disclosure policy.