Apple Is One of the Most Profitable Businesses in the World. Here's Why the Stock Will Be Worth $366 a Share in 1 Year.

Apple (NASDAQ: AAPL) has been an incredible winner for its long-term shareholders. In the past 10 years, the share price has rocketed 1,050% higher (as of Aug. 25), a gain that crushed the overall market's returns.

There is no variable that highlights how exceptional this company is more than its earnings performance. Apple is one of the most profitable businesses in the world. This is a key catalyst that will keep benefiting investors in the future.

Apple currently trades at just under $310 per share. Here's why the Magnificent Seven stock could rise by 18% over the next year to $366 per share.

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A robust competitive position supports the bottom line

In its fiscal 2026 third quarter, which ended June 27, Apple's net profit margin came in at 27.2%. The business generated $109.4 billion in net sales in the quarter, which resulted in $29.8 billion in net income. On an annualized basis, its profits exceed the market capitalizations of all but 194 publicly traded companies in the world.

This is a wildly profitable enterprise. Credit goes to its robust competitive position.

It starts with the brand's premium positioning that supports its pricing power. Apple doesn't sell the cheapest products. It goes after higher-income consumers who don't balk at its price tags.

Its ecosystem, which seamlessly integrates hardware and software, keeps people locked in. Furthermore, Apple's services segment is extremely profitable, carrying a gross margin of 75.6%.

Apple's income statement looks fantastic. However, investors should also take a closer look at the company's cash profits. This topic has become more important recently, especially given the massive capital expenditures being laid out by other tech giants that are aggressively involved in the artificial intelligence (AI) boom. Huge capital expenditures take a toll on a company's free cash flow, which means less money available to pay dividends, buy back shares, pay down debt, or deploy for mergers and acquisitions.

Fortunately for shareholders, Apple's AI strategy doesn't involve building a fleet of AI data centers. Its capex totaled just $6.8 billion through the first nine months of its fiscal 2026. Consequently, its FCF was over $110 billion. This will enable the business to maintain its capital returns program.

Growing profits drive stock gains

According to analysts' consensus estimates, Apple is expected to earn $8.82 per share in its fiscal 2027. That would be 18.2% higher than the forecast total for its current fiscal year. Assuming the stock's price-to-earnings ratio stays constant, this implies that the stock price will increase by the same 18.2% over the coming 12 months.

"In the short run, the stock market is a voting machine," said Ben Graham, the father of value investing, "but in the long run, it is a weighing machine."

Graham, who was also the mentor of Warren Buffett, was asserting that over extended periods of time, a stock's price is most influenced by the underlying company's fundamental performance. In that context, profit growth is the main catalyst that can lift share prices in the long term.

This explains why Apple has been such a great stock to own. In the past decade, its EPS has risen at a compound annual rate of 19%.

Of course, a 12-month time horizon is much shorter. Over such a brief period, market sentiment can have a more profound effect on a stock's performance than profit growth. A year from now, Apple's EPS could be 18.2% higher. But there's a good chance that its price-to-earnings ratio, currently at 35.5, will change.

There's a very clear takeaway for investors: Don't buy stocks based on where you think the share price will be in 12 months. Add businesses to your portfolio with a plan to own them for five years or more. That's how wealth is made in the stock market.

Neil Patel has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Apple. The Motley Fool has a disclosure policy.