Booz Allen Hamilton Holding (BAH): A Comprehensive Analysis of Its Market Value
The stock of Booz Allen Hamilton Holding Corp (NYSE:BAH) has seen a daily gain of 3.22% and a 3-month gain of 1.23%, with an Earnings Per Share (EPS) of 2.22. The question we aim to answer is: Is this stock fairly valued? In the following analysis, we delve deeper into the company's valuation, financial strength, profitability, and growth.
Company Introduction
Booz Allen Hamilton Holding Corp is a leading provider of management consulting services to the U.S. government and other large corporations. It offers technology services like cloud computing and cybersecurity consulting, and engineering consulting. The company's consulting services are primarily focused on defense, intelligence, and civil markets. With a current stock price of $112.79 per share and a market cap of $14.80 billion, our analysis aims to identify if the stock is trading at its fair value.
Understanding GF Value
The GF Value is a unique measure of the intrinsic value of a stock. It is calculated based on historical trading multiples, a GuruFocus adjustment factor based on the company's past returns and growth, and future estimates of business performance. The GF Value Line provides an overview of the fair value that the stock should be traded at. If the stock price is significantly above the GF Value Line, it is overvalued and its future return is likely to be poor. Conversely, if it is significantly below the GF Value Line, its future return will likely be higher.
According to our GF Value calculation, Booz Allen Hamilton Holding (NYSE:BAH) is fairly valued. This implies that the long-term return of its stock is likely to be close to the rate of its business growth.
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Financial Strength
Investing in companies with low financial strength could result in permanent capital loss. Therefore, it's crucial to review a company's financial strength before deciding to buy shares. Booz Allen Hamilton Holding's cash-to-debt ratio of 0.07 ranks worse than 87.68% of 1039 companies in the Business Services industry. Based on this, GuruFocus ranks Booz Allen Hamilton Holding's financial strength as 5 out of 10, suggesting a fair balance sheet.
Profitability and Growth
Investing in profitable companies, especially those that have demonstrated consistent profitability over the long term, poses less risk. Booz Allen Hamilton Holding has been profitable 10 over the past 10 years. Over the past twelve months, the company had a revenue of $9.70 billion and Earnings Per Share (EPS) of $2.22. Its operating margin is 4.91%, which ranks worse than 56.18% of 1052 companies in the Business Services industry. Overall, GuruFocus ranks the profitability of Booz Allen Hamilton Holding at 8 out of 10, which indicates strong profitability.
Growth is a crucial factor in the valuation of a company. Booz Allen Hamilton Holding's 3-year average revenue growth rate is better than 66.63% of 974 companies in the Business Services industry. However, its 3-year average EBITDA growth rate is -2.7%, which ranks worse than 75.27% of 845 companies in the Business Services industry.
ROIC vs WACC
Another method of determining the profitability of a company is to compare its return on invested capital (ROIC) to the weighted average cost of capital (WACC). When the ROIC is higher than the WACC, it implies the company is creating value for shareholders. For the past 12 months, Booz Allen Hamilton Holding's return on invested capital is 7.45, and its cost of capital is 7.39.
Conclusion
In conclusion, the stock of Booz Allen Hamilton Holding (NYSE:BAH) is believed to be fairly valued. The company's financial condition is fair and its profitability is strong. Its growth ranks worse than 75.27% of 845 companies in the Business Services industry. To learn more about Booz Allen Hamilton Holding stock, you can check out its 30-Year Financials here.
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This article first appeared on GuruFocus.
