Homeland insecurity
It was accepted as an investment no-brainer by the end of 2001: Buy shares of companies that served the broad collection of businesses and government agencies that became known as the homeland security market.
Nearly four years later, those stocks form a list of investment winners and losers that would not have been so apparent from the start. American Science & Engineering Inc. of Billerica, which makes X-ray detection and imaging devices, could claim a spot near the top among smaller companies with a tight focus on security markets.
But rapidly growing profits and towering stock gains didn't stop investors from worrying how the company could keep delivering for them. Its backlog had declined, and the season for announcements of big government procurements was about to begin. The company's shares slumped nearly 25 percent, to $36.95, from early July to the start of August. Short interest -- investor bets on a price decline -- climbed by 65 percent in a month.
Then AS&E disclosed quarterly financial results that blew by Wall Street forecasts and followed up with news that the company had secured a big contract to deliver mobile bomb-detection units to the Marine Corps over the next year. Business had been better than expected, and the backlog question moved to the back burner.
AS&E shares shot back up, soaring 42 percent over the past 12 trading days. They touched an all-time closing high Monday and finished yesterday at $52.92. They have appreciated at over 72 percent a year since Sept. 1, 2001, a pace that would put the company near the head of the class of companies making security-related devices. That has turned a very small firm into a business with a still-modest market value of about $445 million.
''People see a lot of sizzle in our company," says chief executive Anthony Fabiano. ''They see the potential and they see us growing at or above homeland security rates."
The company's sizzle comes from a few products, like its Z Backscatter Van, a standard vehicle loaded with X-ray equipment that can drive by a car unobtrusively to detect whether it contains a bomb or other materials.
AS&E is one of two companies testing new equipment at airports to improve scanning of passengers for weapons. One tricky complication: producing useful images of people that won't be too revealing.
The surging demand for security equipment certainly helped propel AS&E's business. But the stock appreciation has as much to do with management reorganization that radically changed the way business was done.
AS&E opened its doors more than 40 years before the terrorist attacks of Sept. 11, 2001, tracing its roots to MIT. The company was known for important technology developments but poor business skills and was losing money as recently as 2003.
''They developed technology and products that were very expensive and didn't have a market," says Eric Brock, a portfolio manager at Clough Capital Partners, which owns about 3 percent of the company's stock. ''Fabiano came in and focused the company on products customers could buy at price points that were reasonable."
All that was a fairly recent development. Fabiano arrived in 2003, and his new management team focused on two things: driving down the cost to manufacture equipment and opening marketing channels.
Sales grew at a more consistent pace last year and more than doubled in the company's most recent quarter. Profits have been climbing sharply for four consecutive quarters.
Fabiano thinks AS&E can grow faster than the 20 percent pace of the overall homeland security market. Investors like Brock see AS&E as a growth company for the foreseeable future but wonder whether an acquisition by a giant like
One safe bet: Demand for AS&E's equipment won't fade away anytime soon.
Steven Syre is a Globe columnist. He can be reached at syre@globe.com. 
