No Absolution for Apple

Updated from 9:08 a.m. EDT

Apple(AAPL Quote) investors tripped Wednesday over the fine line between optimism and fantasy.

While the company's fourth-quarter earnings topped expectations, its sales fell short of Wall Street's estimates. More importantly, iPod sales were nowhere near the heady numbers bandied about on Wall Street.

In early trading Wednesday, the stock fell $3.13, or 6.1%, to $48.46. The price, which is up from an overnight low of about $46, is roughly 28 times next year's Thomson First Call earnings consensus and 23 times the 2007 forecast.

In the quarter ended Sept. 24, Apple earned $430 million, or 50 cents a share, on $3.69 billion in sales. That was up considerably from the year-ago period, when it earned $106 million, or 13 cents a share, on sales of $2.35 billion.

But the company's bottom line was boosted by a number of unexpected tax benefits and a lowering of the company's estimated tax rate. Excluding those, Apple earned 38 cents a share, which narrowly beat Thomson First Call's analyst consensus estimate of 37 cents a share.

On the revenue line, the company couldn't please the Street.

Analysts were expecting $3.73 billion in sales. In July, Apple officials predicted the company would earn 32 cents a share on $3.5 billion in sales in its fourth quarter.

On a conference call with analysts and investors, company officials accentuated the positive, noting that the company posted in its fourth quarter the highest earnings and revenue in its history.

"We just completed the best year in Apple's history," said CFO Peter Oppenheimer on the call. "We remain very enthusiastic about our product pipeline."

Along those lines, Oppenheimer projected in-line results for its coming first quarter. The company expects to earn 46 cents a share -- or 49 cents a share excluding stock-based compensation costs -- on $4.7 billion in sales. Wall Street has predicted that Apple will earn 48 cents a share in the current quarter on $4.53 billion in sales. For the full year, analysts are looking for earnings of $1.71 a share on sales of $16.98 billion.