Since Apple (AAPL 0.33%) was founded over 45 years ago, in 1976, it has climbed to almost unprecedented heights. It has the highest market cap globally -- $2.43 trillion -- even after overcoming a challenging 2022 where its stock price tumbled 27% alongside a broader selloff in numerous other tech stocks.
Since the start of 2023, Apple shares have risen 23% as tech stocks have gradually come back into favor with Wall Street. However, the tech giant's price-to-earnings ratio (P/E) of 26 is relatively low compared to competitors like Amazon, with a P/E of 94, and Walt Disney, at 55.
With that said, it seems to be an excellent time to learn more about the iPhone company and consider investing in it. Here are three things that smart investors know about Apple.
1. Popular products lead to consistent long-term growth
Apple's priority on developing high-quality products has allowed it to charge more than its competitors and led to immense brand loyalty from consumers. In fact, in September 2022, Apple overtook Alphabet's Android for most smartphone market share, hitting the 50% mark. The achievement is especially promising because of the consumer tendency not to switch between smartphone operating systems, often staying with one for the long haul.
Moreover, a majority market share will make it easier for Apple to push its other products and services that use the same design language and can easily complement the iPhone. For instance, when iPhone users need a computer, they are unlikely to choose a Windows (per Microsoft) or Google Chrome device over Apple's MacBook lineup.
Apple's successful product line has driven the stock 248% higher over the past five years and 911% higher over the past decade. Meanwhile, revenue has increased by 48% to $394 billion since 2018, and operating income has soared 68% to $119 billion.
2. Apple is maximizing iPhone profits
Apple's iPhone segment earned 52% of the company's total revenue in 2022, earning $205.4 billion and rising 7% year over year. As a result, Apple's smartphone business is crucial to its success, making coming changes to its iPhone production promising for long-term profits.
On Jan. 9, Bloomberg reported Apple plans to swap out telecom and WiFi/Bluetooth chips from companies like Qualcomm and Broadcom for homegrown versions by 2025. Then on Jan. 11, the media site revealed Apple is also making moves to stop using iPhone displays from Samsung and LG as early as 2024 because it will shift to custom versions.
Ending costly partnerships in favor of in-house-designed components would likely boost the iPhone's profit margins and strengthen the business by lessening Apple's dependence on outside tech companies.
3. A diverse services offering strengthens the business
In addition to boosting its iPhone segment over the long term, Apple is further fortifying its business by expanding into other areas.
The company's subscription-based services business is booming, with offerings such as Apple Music, TV+, iCloud, News+, Fitness+, and Arcade. In fiscal 2022, services revenue growth doubled for the iPhone, rising 14% year over year and hitting $78.1 billion. The segment's profit margin of 71.7% also proved how lucrative the digital business is, with the same metric for products at 36.3% for the year.
Additionally, Apple is reportedly diversifying its product lineup by entering the augmented/virtual reality (AR/VR) markets this year by releasing a new headset. According to Grand View Research, the AR market will expand at a compound annual growth rate (CAGR) of 40.9% until at least 2030. Meanwhile, the VR market will grow at a CAGR of 15% through the same timeframe. As a result, Apple's new headset could see it profit significantly as the markets develop.
Apple has proven itself a reliable growth stock over the years, with coming developments making it a screaming buy this month.
