So let me get this straight: EMC (NYSE:EMC) grew its sales 21% last quarter, and its profits by nearly that much, and the stock is down 3% today? What's up with that?

That's what we're here to find out. But first, a rundown of the highlights:

  • The data storage specialist grew sales 21% to $3.12 billion.
  • Gross and operating margins both climbed, and operating margin remains superior to that of rival Hewlett-Packard (NYSE:HPQ), while inferior to IBM (NYSE:IBM).
  • Net profits came in 20% higher, and profits per share zoomed up 33% to $0.16 as EMC reduced its share count by nearly 10% since this time last year.
  • Free cash flow (defined for this company as cash from operations minus capital expenditures and capitalized software costs) generated year-to-date exploded by 63%, to more than $1 billion -- half again as much as net income reported under GAAP.

What's more, the company appears to be becoming more profitable on the revenue it generates. With the lower-margin hardware and services segments both growing slower than the overall firm's rate (18%), but high-margin licensing revenue rising 27%, the business is bringing not just more, but higher-value dollars through the door.

I have to tell you, folks -- I think Wall Street is off its rocker on this one. EMC's performance yesterday seemed a stunning success to this Fool's eye. Granted, I still think the stock price exceeds its value -- but that was true long before these results. The facts on the ground just plain don't match up with how Mr. Market is reacting to them.

The future
The more I look at the results, though, the more I think the market wasn't looking at them at all -- but rather, at the future. We've already seen two other companies that reported strong results in Q2 get punished yesterday for showing signs of weakness going forward. (Cf. Northrop Grumman (NYSE:NOC) and Ceradyne (NASDAQ:CRDN).) I suspect that's the problem with EMC as well.

Sure, CEO Joe Tucci declared that the "positive 2007 IT spending outlook [that EMC sees] in all major geographies" makes it "clear that [EMC is] in a sweet spot of the IT industry." But he also said that this year's total sales will grow only 14%, and profits, 18%. Respectable numbers themselves, neither one matches the performance that EMC achieved in the first half of this year. And that, my friends, bespeaks a slowdown.

What did we expect out of EMC last quarter, and what did it produce? Find out in:

Got something to say about EMC? Say it in Motley Fool CAPS, the Fool's free, spiffy stock-rating service.

Fool contributor Rich Smith does not own shares of any company named above. The Fool's disclosure policy sticks out its tongue at you.