Apple (NASDAQ:AAPL) shares have been on a great run in 2023, returning over 50% in share value to investors.
As the largest publicly traded company in the world, sporting a market cap of $2.96trn, you might think there is not much more room for its shares to grow. However, there are still plenty of reasons I’d buy Apple shares if I had the spare cash to do so.
Strong business
Firstly, Apple has a pretty robust business. It completely dominates the sectors it trades in. The iPhone accounts for 45% of global revenue in the smartphone market. What’s more impressive is that the iPhone captures approximately 85% of the total operating profit in this industry.
With an enormous trailing 12-month revenue of $384bn, Apple is consistently among the most profitable companies in the world. In the trailing 12 months, it generated a profit of just over $112bn.
It’s no wonder that legendary investor, Warren Buffett has made Apple shares the largest stockholding in Berkshire Hathaway, accounting for 47% of its portfolio.
Valuation concerns
However, there are concerns over the valuation of Apple. Its shares are currently trading at a forward price-to-earnings (P/E) ratio of 28.5.
It is also important to note that just because Apple experienced explosive growth in the past, it doesn’t mean it will continue to at the same pace going forward. For example, revenue fell by 1.4% year on year in the last quarter.
When you put this slowing growth into context, it does make Apple shares look quite pricey.
Services segment
Although Apple shares are looking quite expensive, I believe that its services segment has the potential to continue to generate substantial growth.
Apple services consist of offerings such as iCloud, Apple TV, Apple Pay, and Apple Music.
In the last quarter, its service offerings bucked the trend of its other offerings, growing by 8.2% to $21.2bn. This is currently the fastest growing segment of the company.
I can see this continue to grow at a significant pace. For example, Apple TV, which has over 50m paid subscribers, recently received a boost from its 10-year agreement with the MLS for streaming its football games, when Lionel Messi signed for Inter Miami.
There are also rumours circulating of Apple potentially acquiring ESPN from Disney. This would allow Apple to gain a foothold in the sports streaming market, which has the potential for further growth.
The reason why this is so significant is because the gross margin of service products is 70.5%. This is double the level for products, which have a gross margin of 35.4%.
Now what
Apple shares may seem a bit expensive, but there’s still plenty I like about them. It’s a very robust company that dominates its sector. It has the potential to grow in other areas too, such as its services segment.
I could have mentioned other aspects of the company that I like, for example, its solid balance sheet, the fact it generates more cash than it knows what to do with, or its dividend.
However, my article would have been too long. Therefore, if I had the spare cash to do so, I’d buy Apple shares today.
