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What you must know about Apple earnings

Monday, 28 Oct 2013 | 6:07 PM ET
Apple still worth buying: Cramer
Monday, 28 Oct 2013 | 6:00 PM ET
Mad Money host Jim Cramer says Apple reported "very good numbers" after the close, and says Bristol-Myers is experiencing a "renaissance." He reflects on how earnings expectations impact the stock action.

(Click for video linked to a searchable transcript of this Mad Money segment)

Shares of Apple are down, no they're up. It appears the Street doesn't know what to do with Apple in the wake of its earnings.

Fortunately Cramer does.

Looking at the headline numbers, Apple posted fourth-quarter earnings of $8.26/share; analysts had expected $7.96/share according to Thomson Reuters. Revenue increased to $37.5 billion from $35.97 billion a year ago.

Those metrics look impressive. But when they first crossed the tape, pros ran for the exits.

The Mad Money host explained that the after hours selling in Apple stemmed from the way the Street interpreted margins.

Specifically, the company said gross profit margin fell to 37% in the quarter, down from 40% in the same period last year. Margins have fallen on an annual basis for seven straight quarters.

"Over the past few weeks, pros began to get more bullish about the company's prospects. A lot more bullish. Going into the quarter, analysts were raising their estimates left and right," Cramer said.

Bears were betting the declining margins would ultimately call the whole thesis into question.

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But ultimately "Apple beat on more line items than they missed," Cramer explained.

Also going forward the company appears to have strong tailwinds.

Apple sold 33.8 million iPhones last quarter and 14.1 million iPads; results bode well for the forthcoming holiday season. Also, Apple will release two new iPads in November. It also released new Mac laptops last week.

In the end, the bulls prevailed. Cramer thinks that's as it should be.

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"I also still think Apple's worth buying. There's still a lot the company can do to bring out value with all of the cash it's sitting on," he noted. "And the momentum of the products can't be denied."

However, if you do establish a new position, Cramer also has a word of warning. "Apple is all about Street expectations right now. When they get ahead of themselves, look out."

Call Cramer: 1-800-743-CNBC

Questions for Cramer? madmoney@cnbc.com

Questions, comments, suggestions for the "Mad Money" website? madcap@cnbc.com

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