Three months ago, for-profit educator Apollo Group (NASDAQ:APOL) suffered a shellacking at the hands of Mr. Market for the offense of beating consensus estimates by only a penny. Three months later, Wall Street is hitting replay, with Apollo down more than 3% as of this writing in the wake of the company's latest news.

The difference this time: The Street is right.

Earlier this morning, Apollo released its earnings results for the fiscal second quarter and first half (1H) 2005. They were met with snorts of derision from the Street. Analysts who had predicted Apollo would earn $0.46 per share for the second quarter were singularly unimpressed by Apollo's report that it had in fact earned $0.47. Never mind that Apollo posted 38% better profits than it made in Q2 2004, or 39% better than in 1H 2004, on far lower revenue increases of 27% and 29%, respectively. (Last quarter's results were nearly as good.)

The real story here, you see, is not revenue growth, or even earnings growth. Sure, that's what analysts ordinarily prize above all else -- and with Apollo trading at a trailing P/E of 78, you can't blame them. With recent good news from headhunting firms such as Korn Ferry (NYSE:KFY) and Heidrick & Struggles (NASDAQ:HSII), from staffersSpherion (NYSE:SFN), Kforce (NASDAQ:KFRC) and Manpower (NYSE:MAN), suggesting that U.S. employment is on the upswing, the Market has begun to fret that employees gained by others, are students lost to Apollo.

That kind of worry is infectious. It certainly appears to have spread from Wall Street's mouth to Apollo's hoof -- or at least its cash flow statement. Therein lies the real worry for investors, for while three months ago Apollo's cash generation slowed by a modest 6% over the previous year's Q1, that slowdown became a slamming-on of brakes in Q2. During the first half of fiscal 2003, Apollo generated $204 million in free cash flow. One year later, the company can now claim only $122.4 million -- a stunning 40% decline for this supposed cash printing press of a business.

If Apollo keeps up this kind of a lackluster performance through the rest of this year, come December, the company will be trading for more than 50 times its free cash flow. Too pricey for a company growing its numbers at 40% -- and for one whose free cash flow is declining, too pricey by far.

Judge where Apollo might go, from where it's already been:

Fool contributor Rich Smith has no position in any company mentioned in this article.