Apple Is One of the Most Profitable Businesses in the World. Here's Why the Stock Is Worth $295 a Share Right Now.
The consumer tech leader has been a winning investment over the long term.
Apple (AAPL -0.14%) stands as one of the most successful and profitable businesses globally. Its shares have surged 1,080% over the past decade, and its market capitalization now stands at an impressive $5 trillion. Apple is renowned for its exceptional hardware and software design, fostering a powerful consumer brand with dedicated followers.
This success story is widely regarded as one of the most profitable companies on the planet. The current stock price of $344 represents a 14% discount to the company's estimated worth of $295 per share.
In the latest fiscal quarter (Q3 2026, ending June 27), Apple reported a net income of $29.8 billion, an astronomical figure. Investors need to comprehend why Apple has constructed such a lucrative business model. The secret lies in its pricing power. Apple's sought-after devices are premium-priced, yet customers consistently demonstrate a willingness to invest in these products.
Moreover, they frequently upgrade to newer versions. Another vital aspect is the company's services segment, which contributed 28% of the company's revenue in the most recent quarter, a share that has been steadily increasing. The gross margin for services is a remarkable 76%, significantly higher than the 40% margin generated by product sales.
Despite the stock's expensive valuation, trading at 35 times forward earnings estimates, Apple's profits have proven to be durable. In fiscal year 2016, the company reported a net margin of 21%, a figure that has remained robust over time. This stability has enabled Apple to generate substantial free cash flow, which is then reinvested into the company through share buybacks and dividends.
When comparing Apple to the S&P 500 index, which has a forward P/E ratio of 19.3, Apple appears to be trading at a substantial premium of 81%.
Value investors may choose to overlook Apple due to its high forward P/E ratio. However, the question remains: what should be considered a reasonable multiple for this exceptional company? Some argue that a forward P/E of 30 could be justified, which would imply a current stock price of $295. On the other hand, Apple's staunch supporters would contend that the high valuation is well-deserved.
The company has undoubtedly earned the market's respect, and there's no reason to believe it cannot continue to generate impressive returns in the future.
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