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Is Apple Inc. Still A Buy After Posting History’s Biggest Profit?

Apple (NASDAQ: AAPL.US) has just reported the biggest quarterly profit in history — not just its own history, but the biggest for any company ever!

After selling a staggering 74.5 million iPhones in the three months to December 27, the near-cult supplier of desirable devices posted a net profit of $18bn (approximately £11.8bn), eclipsing the Q2 profit of $15.9bn recorded by ExxonMobil in 2012.

“Incredible”

The rate Apple has been selling iPhones since its iPhone 6 and iPhone 6 Plus release is the equivalent of 34,000 per hour, and blows away initial hopes for around 65 million in the quarter. In fact, Apple recorded sales of $76.6bn in the quarter, leading CEO Tim Cook, not known for hyperbole, to describe the quarter as “incredible“.

Strong sales growth in Apple’s American and European markets was expected by many, but it was eclipsed by a 70% year-on-year sales growth in China — taking Apple to the number one smart phone title in that country.

Apple’s share price has, unsurprisingly, been boosted as a result — at $118 it’s up more than 80% over the past 12 months.

What now?

But what should investors do now?

Well, Apple’s gross margin is improving, reported at 39.9% for the period, and that’s better than both the 37.9% from a year previously and the company’s own guidance of 37.5% to 38.5%. To me, that is not the mark of a company whose explosive growth is set to come to an end any time soon — especially not one that returned $2.8bn to investors in dividends during the quarter, and topped it up with $5bn committed to share repurchases.

Overall, the result was a 48% rise in earnings per share over the year so far, and Apple is sitting on net cash of $178bn! To put that into perspective, $178bn is only a fraction short of the current market cap of HSBC Holdings, which at approximately $189bn is the second most valuable company in the FTSE 100 — Apple could almost buy it out, just from its spare cash!

Modest valuation

And even with the company’s past growth, we’re still looking at a forward P/E of only around 14.7. Granted the dividend yield is relatively low at 1.7%, but it’s on the way up at an inflation-busting rate.

Even after its record to date, I reckon Apple is still a solid growth Buy, and it will one day evolve into a serious income stock.

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Alan Oscroft has no position in any shares mentioned. The Motley Fool UK has recommended shares in HSBC, and owns shares of Apple. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.