As much as I like to poke fun at companies and the behavior that being public tends to enable, I must admit that life as a public company isn't exactly easy. You can do perfectly well and still see your shares get whacked. Not taking it personally sounds easy, but I could see where it might not be if you're living it every day.

I bring this up because today, Palm (NASDAQ:PALM), a Motley Fool Stock Advisor pick, reported decent numbers. However, because of softer-than-expected forward guidance, the shares are getting hammered. The quarter itself was pretty good, with sales up 25%, but net income and diluted earnings per share were both down more than 7%, primarily because of increased research and development spending.

On the cash flow statement, the company reported stronger-than-normal operating cash flow, and in turn, free cash flow, because accounts receivable collection was more robust than expected. On the balance sheet, inventories doubled vs. the same period last year, which is a warning sign given the 25% sales growth year over year. This bears watching, because such a disproportionate increase in inventory is a concern, but the company is heading into the holiday season and is rumored to have a new Treo on the way. This brings us to Palm's war chest of cash. On the earnings call, an analyst asked if there were immediate plans for the cash, and management's answer made it clear there were not.

Paradoxically, I think Palm's shares are much closer to fair value after today's haircut, but they're still not undervalued. Let's be honest: Palm has great products, but there isn't much of a moat here. Roughly two-thirds of the company's sales come from its Treos, a two-product family. (If the aforementioned rumors of a new product on the way are true, that should aid future sales.)

I find it too difficult to pay an above-average multiple for a company that ultimately has to defend two-thirds of its business against Motorola (NYSE:MOT), Nokia (NYSE:NOK), and Research In Motion (NASDAQ:RIMM), and the other third against fellow Stock Advisor selection Dell (NASDAQ:DELL), Hewlett-Packard (NYSE:HPQ), and a slew of foreign competitors. The Treo is a great product, but with a 12-to-18-month product cycle and competitors developing great products of their own, it's hard to maintain any form of dominance. This makes the company's cash hoard, and lack of plans for it, not too surprising. There could come a day when Palm needs that cash to survive and fund additional development.

Handy further Foolishness:

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Nathan Parmelee has a Treo 650 and loves it, but would consider replacing it for something a bit less bulky. He has no financial interest in any of the companies mentioned. The Motley Fool has an iron-clad disclosure policy.