OKLAHOMA CITY -- On the surface, at least,

Force Protection

(FRPT) - Get Report

still looks like an attractive buyout target.

The company ranks as the market's only pure-play seller of mine-resistant ambush-protected vehicles, holding a leadership position in a booming industry. Thanks to huge demand for its popular MRAP vehicles, Force Protection has seen its sales rocket almost 400% -- and its profits jump almost 50-fold -- over the course of the past year.

Unfortunately, however, Force Protection could soon lose its most important customer. In recent weeks, the U.S. Marine Corps -- the biggest buyer of Force Protection's heavy-duty Cougars -- has signaled that it will

cancel future MRAP orders because it has enough of the vehicles already.

With the U.S. military weighing cuts to the multibillion-dollar MRAP program, as it questions the long-term value of the vehicles, Force Protection shares have twice suffered 25% losses in the past two weeks alone. All told, since peaking above $30 in late May, the shares have lost three-quarters of their value and now fetch far less than they did before this year's string of gigantic MRAP awards.

At this point, some feel, only buyout chatter -- which has swirled around the company for some time -- has kept the shares from totally collapsing.

But going forward, even that support could disappear. If so, Force Protection could suffer the same sort of devastation caused by the improvised explosive devices, or so-called IEDs, that the company's vehicles have so effectively managed to deflect.

"In our view, even at (current lows), a buyout by the likes of its manufacturing partner

General Dynamics

(GD) - Get Report

is less likely today than a year ago," David Phillips recently wrote on his 10-Q Detective financial blog. "Force Protection is no longer a sole-source manufacturer of ballistic- and blast-protected wheeled vehicles. (And) Force Protection's road yet to be traveled is laden with buried IEDs."

Phillips has no position in Force Protection shares.

Meanwhile, even Force Protection bears seem surprised by damage suffered by the company so far. Some short-sellers originally planned to cover their positions when the stock fell into the single digits, content to pocket their sizable gains and move on. Now, they see rising chances for a liquidity crisis and have decided to hold out for bigger profits.

Already, bearish investors have shorted 1/4 of Force Protection's stock in anticipation of further declines. After big falls earlier this week, the stock recently was down another 15% to $5.80.

Force Protection declined to answer questions for this story.

Target Practice

As an early leader in the sudden MRAP industry, Force Protection has long been viewed as a likely target for larger companies eager to capitalize on the lucrative niche business. Only recently, in fact, have experts started backing away from this possibility.

Research published by Thomas Weisel Partners analyst David Gremmels now looks especially telling. During his early coverage, launched this spring with Force Protection on its way to record highs, Gremmels was consistently upbeat.

At first, Gremmels saw Force Protection capturing at least half of the booming MRAP market while pursuing other growth opportunities as well. Over time, he listed a number of heavyweight defense contractors -- including General Dynamics,

BAE

and

Textron

(TXT) - Get Report

-- who might pursue new partnerships with Force Protection, or even a complete takeover of the company.

Less than a month after Gremmels' first report, however, BAE decided to purchase larger vehicle maker Armor Holdings instead. Some Force Protection followers now view this development as a negative turning point for the company. But at the time, Gremmels felt inclined to look on the bright side instead.

"Perhaps the most important implication for FRPT is the potential that the BAE/AH move could be the catalyst to further consolidation involving FRPT," wrote Gremmels, whose firm makes a market in Force Protection securities. "We believe that either GD or BAE (still) would be potential acquirers.

"And the fact that AH was acquired for ... a discount to FRPT's 10.5x multiple is irrelevant, given FRPT's more promising growth prospects."

To be fair, a former Force Protection employee says, BAE did show some interest in Force Protection at one time. However, the former employee claims, Force Protection CEO Gordon McGilton -- a

leadership guru with limited military experience -- ruined that opportunity and others that resembled it.

"McGilton insists that the rest of the world -- including companies such as BAE and General Dynamics -- has been doing things wrong forever, and that Force Protection is the first company to do things right," says the former employee. "So everyone who gets involved with Force Protection winds up hating the company and McGilton" in the end.

Fading Star

As it turns out, BAE's purchase of Armor

paid off handsomely. Thanks to a surprise contract awarded to Armor this summer, BAE has emerged as one of three major players -- alongside Force Protection and fellow dark-horse

Navistar

( NAVZ) -- in the MRAP industry.

Meanwhile, Force Protection has seen other merger opportunities fade away as well. Although Force Protection reportedly began weighing a business deal with Textron this June -- and continued to tout that possibility just last month -- nothing has come of that arrangement so far. Rather, Textron has moved forward with plans to help giant

Boeing

(BA) - Get Report

manufacture a lighter military vehicle instead.

Even Force Protection's established partnership with General Dynamics, a joint-venture known as Force Dynamics, has started to look a bit shaky. In an unusual setback, Force Dynamics' proposed medium mine-protective vehicle was recently rejected by the U.S. military. Notably, unlike MRAP, MMPV is a so-called "program of record" that enjoys long-term funding support from the government.

Now, some feel, Force Protection must rely on its new lightweight Cheetahs to fuel any lasting growth at the company. To be sure, Force Protection is investing heavily in its new Cheetah line. In a risky move, the company has already bought a new facility for Cheetah production without securing a single order for the vehicles.

Given the company's low share price, which reflects its uncertain future, it's unclear if Force Protection can actually secure the financing it needs. Meanwhile, some fear that the company could prove less financially sound than it currently seems.

Phillips worries about Force Protection's "allowance for contractual adjustments" in particular. At the end of last quarter, Force Protection had set aside $15.9 million to cover any unfavorable changes to its contracts with the government. However, as its own regulatory filings clearly show, the company has underestimated such corrections in the past.

For example, Force Protection reserved just $367,000 -- or about 1/10 the amount necessary -- to cover changes to a single contract last year. Following routine government audits, Phillips foresees more of the same ahead.

Actually, those audits could take an even heavier toll. Notably, in its official third-quarter report, Force Protection revealed that recent government audits have been "highly critical" of the company's financial accounting system -- ultimately deeming it inadequate -- and warned that it could suffer important contract losses as a result.

Fear and Preparation

Now, even Gremmels fears further deterioration ahead.

The analyst finally

abandoned his bullish stand on Force Protection last month, establishing a tepid market-weight rating on the stock instead, due to fears about the company's risky Cheetah strategy and the financing it needs to carry out its plans. By then, with Force Protection struggling to maintain just one-third of the MRAP market, Gremmels had stopped touting the company as a likely takeover target.

At this point, even Force Protection's own CEO seems uninterested in owning the company. McGilton dumped most of his Force Protection stock early this year -- at nearly triple the current share price -- and has made no effort to rebuild his stake despite the seemingly cheap valuation.

Some company watchers now fear the worst. Specifically, they worry that Force Protection expects just a modest order -- if it receives one at all -- when the government hands out its final MRAP contracts of the year.

Meanwhile, with demand for MRAPs apparently slowing, McGilton's latest boasts have started sounding like scary -- if unintentional -- warnings instead.

"Force Protection's sole mission is to manufacture, deliver and maintain vehicles that feature the best protection available to American and coalition warfighters facing the threat of improvised explosive devices," McGilton stressed during a Congressional hearing last month. "MRAP manufacturing is not an additional business line for us.

"It is our only job."