Booz Allen Hamilton Holding Corporation (NYSE:BAH) shares have had a horrible month, losing 25% after a relatively good period beforehand. The last month has meant the stock is now only up 8.3% during the last year.

In spite of the heavy fall in price, it's still not a stretch to say that Booz Allen Hamilton Holding's price-to-earnings (or "P/E") ratio of 21x right now seems quite "middle-of-the-road" compared to the market in the United States, where the median P/E ratio is around 19x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/E.

With earnings growth that's superior to most other companies of late, Booz Allen Hamilton Holding has been doing relatively well. It might be that many expect the strong earnings performance to wane, which has kept the P/E from rising. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's not quite in favour.

Does Growth Match The P/E?

There's an inherent assumption that a company should be matching the market for P/E ratios like Booz Allen Hamilton Holding's to be considered reasonable.

Taking a look back first, we see that the company grew earnings per share by an impressive 187% last year. Pleasingly, EPS has also lifted 50% in aggregate from three years ago, thanks to the last 12 months of growth. Therefore, it's fair to say the earnings growth recently has been superb for the company.

Turning to the outlook, the next three years should generate growth of 4.9% per annum as estimated by the ten analysts watching the company. With the market predicted to deliver 11% growth per year, the company is positioned for a weaker earnings result.

In light of this, it's curious that Booz Allen Hamilton Holding's P/E sits in line with the majority of other companies. Apparently many investors in the company are less bearish than analysts indicate and aren't willing to let go of their stock right now. Maintaining these prices will be difficult to achieve as this level of earnings growth is likely to weigh down the shares eventually.

What We Can Learn From Booz Allen Hamilton Holding's P/E?

Following Booz Allen Hamilton Holding's share price tumble, its P/E is now hanging on to the median market P/E. While the price-to-earnings ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of earnings expectations.

We've established that Booz Allen Hamilton Holding currently trades on a higher than expected P/E since its forecast growth is lower than the wider market. Right now we are uncomfortable with the P/E as the predicted future earnings aren't likely to support a more positive sentiment for long. This places shareholders' investments at risk and potential investors in danger of paying an unnecessary premium.

It is also worth noting that we have found 2 warning signs for Booz Allen Hamilton Holding that you need to take into consideration.

You might be able to find a better investment than Booz Allen Hamilton Holding. 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.