Apple (NASDAQ:AAPL) comfortably beat analysts' estimates for both revenue and earnings per share when it reported Q3 earnings on Tuesday afternoon. Apple reported revenue of $49.6 billion and EPS of $1.85, compared to consensus estimates of $49.3 billion and $1.81. Nevertheless, investors were hoping for more and sent the stock down by about 5% as of early Wednesday morning.

I was one of the many investors expecting higher sales from Apple last quarter. But while Apple didn't manage to meet my bullish expectations, it still had a very good quarter. This makes the new stock sell-off mildly perplexing, because Apple stock was already quite cheap.

Surprises -- positive and negative
Apple's earnings report came with plenty of surprises. First, Apple sold 47.5 million iPhones, which beat the company's internal projections, but still fell short of the average analyst estimate of 49.4 million (based on a poll by Fortune). This came after a slew of analysts had raised their iPhone sales estimates in recent weeks.

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Apple's iPhone sales growth didn't quite meet investors' lofty expectations. Image source: Apple.

Yet on the flip side, the average selling price for the iPhone increased sequentially by $1 to $660. That runs against the normal seasonal trend of sharp ASP declines toward the end of a product cycle. It also came in the face of incremental currency headwinds. This suggests that any sales shortfall relative to investors' expectations came at the low end of Apple's product portfolio.

Second, Apple Watch sales didn't even live up to relatively muted expectations. While Apple didn't break out Watch sales, it appears that Apple shipped about 2 million Watches based on the total revenue attributed to "Other Products" in Apple's report. This made Apple Watch a very small contributor to Apple's business in its launch quarter.

Third, Apple's Mac bucked the weak PC industry trend to post solid 9% year-over-year growth in shipments and revenue. That falls somewhere in between the bearish and highly bullish estimates recently provided by two market research firms.

Guidance also looks good
Multiple media outlets -- including Reuters and Benzinga -- reported that the post-earnings drop in Apple stock was caused by weak guidance. On the surface, that might seem plausible; analysts currently expect Apple to produce a little more than $51 billion of revenue in Q4, but Apple's forecast calls for revenue of $49 billion-$51 billion.

However, Apple has been pretty consistently conservative with its revenue and gross margin guidance lately. Here are the last six quarters of results:

Quarter

Revenue (Projected)

Revenue (Actual)

Gross Margin (Projected)

Gross Margin (Actual)

Q2 2014

$42 billion-$44 billion

$43.6 billion

37%-38%

39.3%

Q3 2014

$36 billion-$38 billion

$37.4 billion

37%-38%

39.4%

Q4 2014

$37 billion-$40 billion

$42.1 billion

37%-38%

38%

Q1 2015

$63.5 billion-$66.5 billion

$74.6 billion

37.5%-38.5%

39.9%

Q2 2015

$52 billion-$55 billion

$58.0 billion

38.5%-39.5%

40.8%

Q3 2015

$46 billion-$48 billion

$49.6 billion

38.5%-39.5%

39.7%

Bold=above the high end of the guidance range. Source: Apple earnings press releases. 

Apple has exceeded the high end of its revenue guidance range for four consecutive quarters -- and reached the upper half of its guidance range in the previous two quarters. Gross margin has also come in above the guidance range in five of the last six quarters.

Based on this track record, Apple's guidance actually implies that its revenue will probably exceed the average analyst estimate. Assuming that Apple has also issued conservative gross margin guidance, it could produce Q4 EPS of around $2 -- significantly better than the current analyst consensus of $1.86.

Can't beat this valuation
Apple stock looked cheap coming into the earnings report. Considering that it posted solid earnings results and forward guidance, it looks even cheaper now after falling 5% on Wednesday morning.

At its recent price around $124, Apple stock trades for less than 14 times expected earnings for the fiscal year ending this September. That represents a significant discount to the market multiple.

Furthermore, Apple is sitting on a cash pile worth nearly $150 billion, even after deducting its debt. Even if the value of that cash is closer to $100 billion after repatriation taxes, that would mean Apple stock trades for around 12 times earnings, excluding the company's net cash position.

This below-market valuation suggests that if Apple can post any growth at all going forward, the stock is a bargain today. So even though its growth is undoubtedly slowing after the superb iPhone 6/iPhone 6 Plus product cycle, investors shouldn't give up on Apple now.

Adam Levine-Weinberg is long January 2016 $80 calls on Apple, short January 2016 $120 calls on Apple, and short January 2016 $140 calls on Apple. The Motley Fool recommends and owns shares of Apple. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.