Hard on the heels of its victory in last month's Dueling Fools, newly re-monikered Apple, Inc. (NASDAQ:AAPL) reports to Wall Street Wednesday afternoon to regale us with the results of its fiscal first quarter 2007. Want to know what Wall Street expects to see? Read on. Want to know what really matters? Read on a bit more.

What analysts say:

  • Buy, sell, or waffle? Twenty-six analysts follow Apple, with 21 of them rating the stock a buy, and five a hold.
  • Revenues. On average, they're looking for 12% sales growth tomorrow, to $6.42 billion.
  • Earnings. Profits are predicted to climb 20% to $0.78 per share.

What management says:
I'm hard pressed for a way to describe what Apple has said -- in just the last week, much less the past quarter -- that would be anything other than redundant to the extreme. Rather than rehash the news, I'll point you to fellow Fool Tim Beyers' excellent piece covering everything "i", which you can find right here.

What management does:
Apple's rolling gross margins remain remarkably stable, deviating to the plus and minus of the magic number "29" by only a few tens of basis points over the last 18 months. Meanwhile, operating costs that, try as they might, can't catch up with the firm's sales growth rates, have kept operating and net margins rolling uphill.

Margins %

6/05

9/05

12/05

4/06

7/06

9/06

Gross

28.9

29.0

28.5

28.6

28.8

29.1

Op.

11.3

12.1

12.5

12.7

13.2

13.5

Net

7.9

9.5

9.9

10.0

10.3

10.3
All data courtesy of Capital IQ, a division of Standard & Poor's. Data reflects trailing-12-month performance for the quarters ended in the named months.

One Fool says:
I love Apple. And in fact, with the exception of virus-writers and CAPS players, it seems everyone loves Apple these days. But when I say "I love Apple," I mean "I love Apple products." As for Apple, the stock, I've said I think it's overpriced, and I stand by that position.

What's more, I think I see more risk in the stock than do many investors (again, CAPS players excepted). Here's why: On the income statement, we've seen cost of goods sold and operating costs closely track sales gains over the last six months -- each is up somewhere between 26% and 28% year over year, on average. Until something changes there, I see little risk of margin erosion, but also little prospect of profits growth significantly outpacing sales growth in the future (you need margin expansion for that). Where growth has slowed, surprisingly, is in R&D spending, which is up just 14% year over year in the last six months. Perhaps that just means Apple is doing more with less; but perhaps it means it isn't planting as many seeds that could grow into further amazing Apple products, as it should be.

Meanwhile, on the balance sheet, the company's working capital management looks suspect. Accounts receivable have risen 36%, and inventories are up 35% -- both well in excess of sales growth. Long story short, I don't ignore the firm's past successes, nor do I discount the possibility that the iPhone and iTV foretell future successes. But I do see signs of trouble, and investors would be foolish (small "f") to ignore such signs if they pop up again in tomorrow's news.

Competitors:

  • Dell (NASDAQ:DELL)
  • Gateway (NYSE:GTW)
  • Hewlett-Packard (NYSE:HPQ)
  • Sirius Satellite (NASDAQ:SIRI)
  • Sun Microsystems (NASDAQ:SUNW)
  • Microsoft (NASDAQ:MSFT)

If you missed our Dueling Fools segment on Apple last month, never fear -- you can find it right here:

Dell is an Inside Value and Stock Advisor selection. Microsoft is an Inside Value pick.

Fool contributor Rich Smith does not own shares of any company named above.