For a mere billion-dollar stock -- a small cap by today's standards -- Ciena's (NASDAQ:CIEN) earnings report yesterday sure attracted a lot of attention. I predicted bad news earlier this week, so by all rights, it shouldn't have come as a surprise. By my count, there are nearly five dozen articles discussing the news clogging up the Yahoo! Finance feeds already -- and the week's not yet done.

So why are you adding one more?
Simply put, because I think everybody else is getting this story all wrong.

Yes, Ciena failed to meet expectations yesterday -- but only just barely. Sales growth of 24% fell an optical fiber's breadth short of analyst estimates. Per-share profits, once changed to the "adjusted" form that management often prefers, met expectations of $0.37. And net profits of $0.12 per share, while not pretty, were caused in part by the writedown of certain commercial paper investments of which I warned Tuesday.

Yes, too, Ciena reduced fourth-quarter revenue estimates to roughly $200 million. But even though CEO Gary Smith warns that "sales cycles are lengthening" as major telecoms (Ciena sells to such giants as AT&T (NYSE:T) and Verizon (NYSE:VZ)) become more cautious about their capex, it now seems certain that Ciena will participate in the predicted telecom infrastructure boom that Cisco (NASDAQ:CSCO) spoke of a few quarters back. Ciena is helping Cisco build the Global Sprint (NYSE:S) Tier 1 IP Network.

Time to weigh risks ...
The risk here -- and the reason for the sell-off -- is clear. Ciena assures us that it has "seen no project or order cancellations." Still, Ciena's sales will almost certainly decline in fiscal Q4 -- the first time that's happened at the company since January 2004.

... and rewards
And yet, at the midpoint of guidance, we're still looking at $922 million in sales for this year. If Ciena can maintain this year's net profit margin of 8.9%, that should work out to nearly $82 million in profit by year-end, giving the firm an attractive P/E ratio of about 14.

Moreover, if Ciena manages to generate free cash flow at the current run rate, that would give us a price-to-free cash flow ratio of around 8.6. Assuming Ciena eventually resumes the growth path that analysts have plotted for it (16.9% per annum over the long term), that makes the stock look downright dirt cheap.

What did we expect out of Ciena last quarter, and what did we get? Find out in:

Fool contributor Rich Smith does not own shares of any company named above. Sprint is an Inside Value pick. The Motley Fool has a disclosure policy.