Booz Allen Hamilton has been treading water for the past six months, recording a small loss of 3.2% while holding steady at $75.29. The stock also fell short of the S&P 500’s 12.3% gain during that period.
Is there a buying opportunity in Booz Allen Hamilton, or does it present a risk to your portfolio? Get the full stock story straight from our expert analysts, it’s free.
Why Is Booz Allen Hamilton Not Exciting?
We’re cautious about Booz Allen Hamilton. Here are three reasons why there are better opportunities than BAH, plus one stock we’d rather own.
1. Revenue Growth Flatlining
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 revenue was flat over the last two years. 
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 3.8%. Although this projection implies its newer products and services will spur better top-line performance, it is still below average for the sector.
3. Adjusted Operating Margin in Limbo
Adjusted operating margin is one of the best measures of profitability because it tells us how much money a company takes home after subtracting all core expenses, like marketing and R&D. It also removes various one-time costs to paint a better picture of normalized profits.
Analyzing the trend in its profitability, Booz Allen Hamilton’s adjusted operating margin might have fluctuated slightly but has generally stayed the same over the last five years. This raises questions about the company’s expense base because its revenue growth should have given it leverage on its fixed costs, resulting in better economies of scale and profitability. Its adjusted operating margin for the trailing 12 months was 10.2%.
Final Judgment
Booz Allen Hamilton isn’t a terrible business, but it doesn’t pass our quality test. With its shares lagging the market recently, the stock trades at 12× forward P/E (or $75.29 per share). While this valuation is reasonable, we don’t really see a big opportunity at the moment. We’re fairly confident there are better stocks to buy right now. Let us point you toward a fast-growing restaurant franchise with an A+ ranch dressing sauce.
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