Pre-Paid Legal: Not for the Faint of Heart

With a chart like an erratic EKG, Pre-Paid Legal Services (PPD Quote) has never been a stock that let investors sleep easily.

The Oklahoma-based company is, in essence, the Amway of litigation, selling limited-coverage legal plans instead of cleaning supplies. It dominates a small but growing niche of the insurance industry, promising select legal benefits to more than 1.36 million customers. And it relies on a swelling multilevel marketing sales force -- often as bent on recruiting as on selling the company's $25-a-month legal policies -- to maintain healthy and sometimes explosive growth. (For a story on the colorful backgrounds of some of the top recruiters, click here.)

To the naked eye, Pre-Paid looks impressive. It posts double-digit profit growth just about every quarter. It practically mints money, reporting a whopping 67% surge in cash flow last quarter. It hasn't a cent of long-term debt. ...