Shares in Admiral, which have doubled in value since October and are among the most highly rated in the information technology sector, dropped 10 per cent to 1290p after the company reported pre-tax profits of pounds 23.5m - an increase of 34 per cent - for the year to last December.
At first glance, there appeared to be little wrong with the figures. Before acquisitions, revenues grew by 22 per cent to pounds 143m. And Admiral's operating margins, which are already among the best in the industry, widened by a full percentage point to 15.5 per cent.
However, investors are beginning to have their doubts about whether Admiral can sustain its past growth rates in the coming year and, more importantly, into the next century.
Yesterday, the company hinted that there might be a downturn in business in the final quarter of the year as customers put projects on hold in the run-up to the millennium.
Meanwhile, it is on the lookout for acquisitions in continental Europe as it attempts to widen the geographical spread of its operations.
Clay Brendish, Admiral's chairman, said the company had recently fixed on the need for strategic acquisitions as part of its long-term business plan. "We are looking for a geographical presence in comparable markets," he said, pointing out Germany and the Netherlands as key areas for expansion.
However, some experts said Admiral would have trouble lifting margins in its continental European operations, which are currently about 10 per cent, to the 19 per cent return it enjoys in the UK. Meanwhile, operating cash flow had not grown as strongly as its profits, suggesting that revenue growth might be about to slow down.
On profit forecasts of about pounds 30m for the current year, the shares trade on a forward earnings multiple of 43. Although Admiral is widely lauded as a well-run company, most observers believe that on its current prospects the shares are high enough.