PDA specialist Palm (NASDAQ:PALM) may have exceeded expectations Thursday evening, but applause was notably lacking. Apparently, everyone was too busy clapping for Research In Motion's (NASDAQ:RIMM) results -- or balancing a credit card in one hand, a newly purchased Apple (NASDAQ:AAPL) iPhone in the other, and juggling an AT&T (NYSE:T) service application between the two. (And if you're wondering why there was no cheering, they were signing the application with a pen gripped in their teeth.)

Sales for the quarter declined about half a percent year over year. For the full fiscal year, they were down by a little more than 1%. For its fiscal Q4 and full-year earnings, Palm reported:

  • $0.15 per share net for the quarter, down 40% year over year.
  • $0.54 per share net for the year, down 83% against 2006 results -- 65 percentage points of which were owed to a tax benefit recorded last year that did not reappear this year.

Pretty sad, huh? But it's not all bad news at Palm. Inexplicably for a year-end earnings release, it included a cash flow statement that only covered the last quarter of the year. But I've mated these numbers with its cash flow results for the previous three quarters of the year, and arrived at the sum of $143.5 million in free cash flow generated throughout the course of the fiscal year. For the record, that's about 250% as much as its GAAP earnings, and enough to price the company at less than 12 times trailing free cash flow. Not necessarily a bargain, given analysts' prediction of sub-10% profit growth going forward, but it doesn't make the stock look terribly overpriced either.

Unless growth slows
The real problem with Palm's earnings news, of course, wasn't the news at all, but the foreshadowing of news to come. Management guided investors to expect about $360 million in sales next quarter, just 1% growth; roughly 37% gross margin on that revenue, again, flat against last year; and breakeven earnings, a 100% decline (natch) from last year's $0.16 per-share net.

In other words, management itself promised that the firm would flatline in the current quarter, growing nowhere near the analysts' projected 10%. Whether that will change, or whether Palm simply atrophies and dies -- well, that's the question on which the stock's fate hinges, isn't it?

For all its troubles, Palm remains an active recommendation of Motley Fool Stock Advisor. Wanna know why? Take a free 30-day trial of the service and find out.

Fool contributor Rich Smith does not own shares of any company named above. The Fool's disclosure policy has a very long life line.