By Motorola Solutions stock price has been firing on all cylinders in the past few years even as many people have largely forgotten about it. It soared to a record high of $480 this week, bringing the year-to-date gains to 50%, meaning that it is outperforming most tech stocks.
Motorola shares have risen by almost 200% in the past five years, outperforming well-known brands like Alphabet (GOOG), Microsoft (MSFT), and International Business Machines (IBM).
Why Motorola Solutions stock is soaring
Motorola Solutions is a global technology company valued at over $77 billion. It is a firm that operates its business through the Land Mobile Radio Communications (LMR), video security, and access control divisions.
The LMR division manufactures two-way radio and broadband and their supportive software that are used by many government departments globally. In Video, it makes fixed, body-worn, and in-vehicle cameras, while its command center business makes solutions that unify voice, video, data, and analytics solutions for public safety agencies.
Motorola Solutions is what remained when Google acquired Motorola in 2011 for $12.5 billion as it sought to enter the smartphone market. At the time, Motorola was one of the biggest smartphone manufacturers globally. It used to compete with the likes of Samsung, Nokia, and even Philips.
MSI is now largely unknown because it provides its solutions to government agencies, non-governmental organisations, and other companies.
Its business has done modestly well over time as its revenue moved from $7.4 billion in 2020 to over $10.4 billion in the trailing twelve months. Its profits have also risen from $953 million to $1.46 billion in the same period, which explains why the stock has jumped.
MSI earnings ahead
Motorola Solutions stock price will be in the spotlight on Thursday when it publishes its second-quarter financials.
The most recent results showed that Motorola Solutions’ revenues rose by 9% in the second quarter to over $2.4 billion. This revenue growth was mostly because of its LMR and video divisions whose revenue rose by 15% to $1.65 billion.
The revenue growth was offset by its software and services division whose revenue was flat at $977 million.
Analysts expect that Motorola Solutions’ revenue rose by 8% in the third quarter to $2.76 billion. For the year, they expect that its revenue will be $10.8 billion, followed by $11.46 billion in the next financial year.
There are chances that MSI’s results will be better than expected because it has constantly outperformed expectations in the past few quarters.
Read more: Build a ‘long-term position in this high-quality stock’: JPMorgan
Valuation concerns remain
Motorola Solutions, as the top player in its industry, deserves to trade at a premium. However, there are signs that the company has become highly overvalued since it is not seeing double-digit growth rates.
According to SeekingAlpha, Motorola has a forward price-to-earnings ratio of 53, almost double that of the sector median of 29. This figure is also much higher than the five-year average of 35. Its non-GAAP P/E ratio of 35 is also higher than the median of 24.
To put these numbers in context, let us look at other large technology companies. NVIDIA, a company that is growing by triple-digits, has a forward P/E ratio of 51.2. Similarly, Microsoft has a forward multiple of 31.37, while Alphabet has a ratio of 21.
These companies are not only growing at a faster pace but also have higher margins. Alphabet has a gross and net profit margins of 58% and 27%, while NVIDIA has 75% and 55%, respectively.
In contrast, Motorola Solutions has a gross and net income margin of 50 and 14, respectively. As such, given the choice of these firms, I would not select Motorola Solutions.
Analysts also believe that Motorola Solutions stock has little upside going forward. For example, the current average target is $464, which is a few points below the present price.
MSI stock has not received an upgrade in the past few months. Some of the most bullish analysts are from companies like Bank of America, Jefferies, Evercore, and Deutsche Bank.
Motorola Solutions stock analysis
MSI chart by TradingView
The weekly chart shows that the MSI share price has been in a strong unstoppable bull run in the past few years. It has constantly formed a series of higher highs and higher lows.
The stock remains significantly higher than the 50-week and 100-week moving averages. For example, it is almost 20% higher than the 50-week moving average.
Motorola Solutions’ Relative Strength Index (RSI) and the MACD have started to flash red. The two lines of the MACD have made a bearish crossover, while the Relative Strength Index (RSI) has pointed downwards.
Therefore, there are rising odds that it will have a bearish breakout in the near term. If this happens, it could drop to the key support at $400.
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