Source: Apple

Apple (NASDAQ:AAPL) stock is on a roll: shares of the iPhone maker have risen by more than 65% over the last year, making new highs above $120 per share. In this context, investors could naturally feel reluctant to buying in at all-time highs; however, there are strong reasons to believe Apple still offers substantial upside potential from current levels.

Apple is firing on all cylinders
Apple delivered a truly mind-blowing earnings report for the December quarter. The iPhone is the main growth driver for the company, and performance in this segment is being nothing short of breathtaking. Total iPhone revenues grew 57% to $51.2 billion in the last quarter, in unit terms; Apple sold a massive 51 million devices during the period. To put the numbers in perspective, assuming that the business works nonstop 24 hours a day and seven days a week, this means Apple sold 10 iPhones per second during the last quarter. 

The iPhone is a remarkably profitable product for Apple. In times when most competitors need to aggressively cut their prices to sustain market share, Apple is demonstrating extraordinary pricing power and selling its new iPhone 6 and iPhone 6 Plus models for ever higher prices. The average selling price in the iPhone segment was $687 per unit during the last quarter, a year-over-year increase of $50.

Higher sales prices are allowing Apple to increase profit margins; gross margin was 39.9% of sales during the last quarter, an increase versus 37.9% of revenue in the same quarter in 2013. In addition, the company is distributing tons of cash to shareholders via both dividends and buybacks, total capital distributions during the last year were nearly $57 billion.

Booming iPhone sales, expanding profit margins, and a reduced share count via buybacks allowed Apple to deliver jaw-dropping increase in earnings per share of 48% in the last quarter. Considering the company's impressive performance, it should come as no big surprise to see the stock trading near historical records.

It's all about the future
On the other hand, past results are no guarantee of the future. Investment decisions need to be made based on forward-looking considerations, so we need to evaluate Apple in terms of its risk and potential return over the years ahead, not just past performance.

The future is looking good over the coming quarters, especially since demand for the new iPhone 6 and iPhone 6 Plus models is remarkably strong in emerging markets. While iPhone unit sales in the U.S. jumped 44% in the last quarter, the sales increase in BRIC countries was an explosive 97% during the period. In China, which is now Apple´s second largest market for smartphones, iPhone unit sales more than doubled during the last quarter. As the mobile revolution expands to emerging markets over the middle term, Apple is remarkably well positioned to continue benefiting from booming demand for its iPhone 6 and iPhone 6 Plus models.

On a longer time frame, however, the company will need to continue innovating and expanding into new product categories in order to sustain performance. Markets mature over time, and it's unreasonable to expect these levels of growth from the iPhone indefinitely. When looking at other product segments, the numbers don't look that appealing at all, iPad sales are falling, and total revenues would have declined if excluding the iPhone from Apple's latest quarterly figures.

Apple is betting on Apple Pay and Apple Watch to expand into new categories, while these new ventures will hardly move the needle by much in the coming quarters, Apple has proven time and again that it has the brand power and innovative vision to disrupt different industries.

For what it's worth, Apple CEO Tim Cook is quite bullish about these products. During the last conference call, Cook said that nearly 750 banks and credit unions have signed on to bring Apple Pay to their customers, and in just three months after launch, Apple Pay makes up more than two out of every three dollars spent on purchases using contactless payments across the three major U.S. card networks.

Cook also said that Apple Watch is right on schedule and expected to begin shipping in April. From his -- admittedly subjective -- point of view, Apple Watch could be a big winner. In his own words: "My expectations are very high on it. I'm using it every day and love it, and I can't live without it."

Innovation is always risky, even when it comes to a company like Apple. But those risks are already reflected in Apple's valuation to a considerable degree. Apple trades at a forward P/E ratio of nearly 14 times earnings forecasts for the year ended on September 2015, this is a discount versus the average valuation for companies in the S&P 500 index, in the neighborhood of 17.

In a nutshell, Apple is booming thanks to the iPhone, and products such as Apple Pay and Apple Watch could provide the next phase of growth for the company. While innovation is risky, the stock is trading at a very reasonable valuation, so those risks seem to be already reflected on stock's price. Chances are Apple will continue delivering substantial gains for investors in the years ahead.

Andrés Cardenal owns shares of Apple. The Motley Fool recommends Apple. The Motley Fool owns shares of Apple. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.