Motorola Solutions (MSI) Stock Falls by 8% on Flat Revenues

As the markets opened on Friday, the Motorola Solutions (MSI) Stock fell sharply by 8% to $125.37. This move comes as the latest Q1 report showed the flat revenues. According to the latest report, in the first quarter, the company sales stood at $1.655 billion, only $2 million lower than a year ago.  There was also some positive news too, as the Earnings per share has risen by 30%.

Greg Brown, chairman, and CEO of Motorola Solutions commented on those results: “In Q1, we generated strong earnings and cash flow with solid demand for video security and software & services.”

                                                                                                                                                                                               source: cnbc.com

As we can see from this chart, MSI has not fallen as much as many other S&P 500 stocks.  The Motorola Solutions shares were in an uptrend for several years, rising from $90 back in 2018 to $185 by February 2020. The collapse of stock market prices at the end of that month also led to MSI falling to $125. However, the company stock remains resilient at one point stock did manage to climb back to $155 level. Despite this recovery as we can see, the MSI is back to $125.

The reason behind this failure is not just the current Q1 numbers. Obviously stagnating sales is not a piece of good news. However, more importantly, the company is now projecting a 14% to 17% decline in revenue in the second quarter. Such a significant fall in sales might severely damage the company’s profitability and makes the long term future of the firm very uncertain.

Are Motorola Solutions (MSI) Stock Still Expensive?

According to the latest results, the Earnings per Share for the last 12 months for Motorola Solutions stands at $4.94. The beta of this stock is 0.71, so on average, it is less volatile than the rest of the S&P index. The company may not have such a long history of dividend payments as some other blue-chip stocks. However, during the last decade, the management consistently increased the amounts distributed to shareholders. The company increased its quarterly dividends from 22 cents back in 2011 to 64 cents in 2020. So we might conclude that the management has some inclination to return some portion of the company’s cash to its shareholders.

The Price to Earnings ratio of the firm is 125.37/4.94 = 25.38. This suggests that at current prices, the MSI stock is overvalued. This tendency might become even stronger if in line with analysis the company will lose 1/6 of its revenue.

On the bright side, the firm does have quite healthy margins, which stands just below 50%. This might help Motorola Solutions to maintain its profitability despite the negative effects of the economic downturn.

On balance, one can say that MSI stock does have some good qualities. However, at current prices, it is somewhat overvalued. Also, the company’s pessimistic forecasts do bring maintaining future dividend payments into question. The stock does have a low beta, however, in ties of economic crisis, consumer goods, foods, and beverage producers are much better positions to withstand challenges than the ones like Motorola. Consequently, the viability of buying MSI shares will heavily depend upon the future financial performance of the firm, as well as global economic conditions.