Cisco's (NASDAQ:CSCO) quarterly report looks absolutely brilliant. Massive gains in earnings, increasing sales, $2.4 billion in operating cash flows, and muscular 70%-plus gross margins are everything you'd want to see from one of the world's great companies.

And yet... Cisco's stock got smacked after hours once it reported and is 4% lower in trading today. Far be it for us to care about short-term moves, but since you didn't ask, we have a theory or three about this very thing. Let's call them the three wormholes.

  • Wormhole #1 Inventories skyrocketed over last quarter to well over $1.1 billion, a gain of nearly 20% from the previous quarter. Although John Chambers, Cisco's CEO, noted that this could happen, longer-term investors in the company remember all too well the sudden writedown of more than $2.2 billion in inventory in 2001. Two things to note here. First, if Cisco is currently producing too much gear, then why in the world is the company hiring? And second, even though the company did state that the rise in inventory was no big deal, this doesn't exactly jibe with their projected growth of 3%-5% for the remainder of the year.

  • Wormhole #2 Cisco reports that it has bought back more than $7 billion in stock over the last nine months -- though over the last year, the company's total share count has only dropped by 246 million if you take the basic share count, or 82 million going by the diluted count. Of course, since the stock is higher than it was a year ago, more options are going to be in the money, but even on a basic-share basis, that means that each net share decrease in the share count cost of $28 of shareholder equity, and that number balloons to over $85 per stub using the diluted number. That's the impact to shareholder equity for companies that issue enormous amount of options.

  • Wormhole #3 This one's quite simple. Take a good look at these results, and then take a good look at Cisco's share price. The shares had already taken these exact results into account, maybe even more so. Dynamite earnings don't mean much when they're anticipated. Those who were most optimistic didn't get the shouting from the rooftops they had hoped for in their heart of hearts, while for everyone else, these results were like the arrival of a cigar box purse you won on eBay (NASDAQ:EBAY): bought, paid for, and as advertised. You do notice that there's a little thread loose, but ideally that won't cause the whole thing to fall apart.

Bill Mann owns none of the companies mentioned in this story.