Will Apple Inc.'s Profit Margin Continue Upward?

One of the key drivers behind Apple (NASDAQ:AAPL) stock's recent ascent to a new all-time high is undoubtedly the tech giant's improving gross profit margin. In 2013, when Apple stock fell sharply from a post-split $100 to levels around $60, the Street saw the company's narrowing gross profit margin as a sign of increased competition and possibly the beginning of weakening pricing power. By looking at the trend of Apple's gross profit margin in the last few years in relation to the company's stock price, it even appears that the company's profit margin may be one of the biggest drivers for the stock.

This historical trend of gross profit margin as a driver for Apple stock is one of the reasons Barclays analyst Ben Reitzes (via AppleInsider) is raising his 12-month price target for the stock to $140 from $120. The stock closed on Dec. 3 at $115.93. Over the past year it has ranged from $70.51 to $119.75, according to S&P Capital IQ data.

Not only is Apple's gross profit margin already on the rise, but Reitzes sees a hot-selling iPhone 6 line, a "high-margin" Apple Watch, Apple Pay, and other "soon to be announced" digital services as catalysts for further margin expansion.

Apple's improving gross profit margin
One of the main catalysts behind Apple stock's rebound in 2013 was likely a trend of a narrowing gap in year-over-year gross profit margin comparisons in the second half of the year.

Data from SEC filings; author's chart.

The trend of improving comparisons has continued and comparisons have even turned positive, remaining positive for the last three quarters. Apple's midpoint for its gross profit margin guidance in the first fiscal quarter of 2015 is also higher than its gross profit margin in the year-ago quarter, suggesting Apple expects this trend to continue.

Given that Apple management has said that its iPhone is its most profitable product, and considering that Apple looks poised to post record-shattering iPhone sales in Q1 on the strength of strong iPhone 6 demand, positive gross profit margin comps are probably already in the bag for the immediate quarter.

sources: http://www.fool.com