"I wouldn't be a buyer until either: (a) Western Union proves it's able to ramp up its growth in excess of expectations, or (b) the share price falls by a third." -- "Foolish Forecast: Western Union Wilting?," Oct. 22.

Well, we're now at earnings plus two days, and my option (b) clearly doesn't seem to be in the cards. On the contrary, shares of Western Union (NYSE:WU) are trading 13% higher in the wake of an earnings report confirming the predicted 10% revenue growth, and $0.28 per share in profits.

So what about option (a)?
Things look a bit brighter on the revenue-growth front. According to CEO Christina Gold, international consumer-to-consumer (C2C) funds transfers were "especially robust" during the quarter; transfers to and from Mexico "continued to improve"; and the domestic U.S. business is "improving." The company renewed agent relationships with Safeway (NYSE:SWY) and Sears Holdings' (NASDAQ:SHLD) Kmart in the U.S., signed up Wal-Mart (NYSE:WMT) in Canada, and expanded its relationship with Google (NASDAQ:GOOG) in the consumer-to-business (C2B) payments arena. Good news all around, it seems.

But ...
But there was one "but." As mentioned in the Foolish Forecast, Western Union has been experiencing some significant margin compression lately, with transactions rising well enough, but revenue failing to rise in tandem. That was the story once again in Q3:

  • Operating margins declined 400 basis points year over year, to 26%.
  • Overall C2C transactions increased 15%, but revenue grew only 10%.
  • International C2C transactions increased even faster, up 20% -- but with revenue rising only 16%.
  • Mexico C2C transactions were up 7%, with revenue actually declining 1%.
  • Domestic C2C business saw transfers fall 4%, revenue by 10%.

Put it all together, stir well, and you wind up with management guiding to 10% total revenue growth this year (which should be pretty firm, as we're more than three-quarters through the year at this point), but profits that, at about $1.10 per share even after sizable buybacks, will likely be down about 8% year over year.

Does all of this justify hiking Western Union's market cap $1.8 billion? Already, one analyst (albeit the rather mediocre DA Davidson) has voted "yes". As you can probably guess, I'm a bit less enthusiastic. To break the tie, head on over to Motley Fool Inside Value for a free trial subscription and a chance to see what our analysts -- who've recommended Western Union three times, for an average return of 10% per pick -- think on the matter. And while you're there, don't forget to check out our interview with Western Union CEO Christina Gold.

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.