Getting In Cheap On Motorola Solutions, Inc. (NYSE:MSI) Might Be Difficult

When close to half the companies in the United States have price-to-earnings ratios (or "P/E's") below 18x, you may consider Motorola Solutions, Inc. (NYSE:MSI) as a stock to avoid entirely with its 49x P/E ratio. However, the P/E might be quite high for a reason and it requires further investigation to determine if it's justified.

The recently shrinking earnings for Motorola Solutions have been in line with the market. It might be that many expect the company's earnings to strengthen positively despite the tough market conditions, which has kept the P/E from falling. If not, then existing shareholders may be a little nervous about the viability of the share price.

View our latest analysis for Motorola Solutions

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Is There Enough Growth For Motorola Solutions?

In order to justify its P/E ratio, Motorola Solutions would need to produce outstanding growth well in excess of the market.

If we review the last year of earnings, dishearteningly the company's profits fell to the tune of 2.8%. Regardless, EPS has managed to lift by a handy 29% in aggregate from three years ago, thanks to the earlier period of growth. So we can start by confirming that the company has generally done a good job of growing earnings over that time, even though it had some hiccups along the way.

Looking ahead now, EPS is anticipated to climb by 21% each year during the coming three years according to the twelve analysts following the company. With the market only predicted to deliver 10% each year, the company is positioned for a stronger earnings result.

In light of this, it's understandable that Motorola Solutions' P/E sits above the majority of other companies. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

The Final Word

Using the price-to-earnings ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

As we suspected, our examination of Motorola Solutions' analyst forecasts revealed that its superior earnings outlook is contributing to its high P/E. At this stage investors feel the potential for a deterioration in earnings isn't great enough to justify a lower P/E ratio. Unless these conditions change, they will continue to provide strong support to the share price.

Having said that, be aware Motorola Solutions is showing 3 warning signs in our investment analysis, you should know about.

You might be able to find a better investment than Motorola Solutions. If you want a selection of possible candidates, check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.