What a brutal six months it’s been for Booz Allen Hamilton. The stock has dropped 32.4% and now trades at a new 52-week low of $63.70, rattling many shareholders. This might have investors contemplating their next move.
Is now the time to buy Booz Allen Hamilton, or should you be careful about including it in your portfolio? Get the full stock story straight from our expert analysts, it’s free.
Why Is Booz Allen Hamilton Not Exciting?
Despite the more favorable entry price, we’re swiping left on Booz Allen Hamilton for now. Here are three reasons why there are better opportunities than BAH, plus one stock we’d rather own.
1. Lackluster Revenue Growth
Long-term growth is the most important, but within business services, a stretched historical view may miss new innovations or demand cycles. Booz Allen Hamilton’s recent performance shows its demand has slowed as its annualized revenue growth of 2.6% over the last two years was below its five-year trend. We’re wary when companies in the sector see decelerations in revenue growth, as it could signal changing consumer tastes aided by low switching costs. 
2. Projected Revenue Growth Is Slim
Forecasted revenues by Wall Street analysts signal a company’s potential. Predictions may not always be accurate, but accelerating growth typically boosts valuation multiples and stock prices while slowing growth does the opposite.
Over the next 12 months, sell-side analysts expect Booz Allen Hamilton’s revenue to rise by 1.6%, close to its 7.4% annualized growth for the past five years. This projection doesn’t excite us and implies its newer products and services will not catalyze better top-line performance yet.
3. Recent EPS Growth Below Our Standards
While long-term earnings trends give us the big picture, we also track EPS over a shorter period because it can provide insight into an emerging theme or development for the business.
Booz Allen Hamilton’s EPS grew at an unimpressive 8.9% compounded annual growth rate over the last two years. On the bright side, this performance was higher than its 2.6% annualized revenue growth and tells us the company became more profitable on a per-share basis as it expanded.
Final Judgment
Booz Allen Hamilton isn’t a terrible business, but it doesn’t pass our bar. Following the recent decline, the stock trades at 9.9× forward P/E (or $63.70 per share). This valuation multiple is fair, but we don’t have much faith in the company. We’re fairly confident there are better stocks to buy right now. We’d suggest looking at our favorite semiconductor picks and shovels play.
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