Is BigBear.ai a Millionaire-Maker Stock?

Given that shares of BigBear.ai (BBAI) have risen by 78% so far this year, it’s attracting interest from investors seeking a small, rapidly expanding firm with the possibility to make millions. However, is the surge driven by excitement or genuine value?

I’ll delve further into the advantages and drawbacks of this AI software’s stock, trying to determine if it can continue its remarkable surge.

What is BigBear.ai?

BigBear.ai was created by combining multiple AI and big data analytics companies that were owned by the private equity firm AEI Industrial Partners. Although it became publicly traded only last year through a merger with a special acquisition company (SPAC), you might be surprised to learn that BigBear.ai is actually older than one would think, as some of its components can be traced back to 1988.

BigBear.ai’s solutions encompass software for biometrics, such as facial recognition and contactless identity verification, which is already implemented at significant U.S. airports like Dallas-Fort Worth International and Los Angeles International. Furthermore, they provide a diverse array of big data analytics software aimed at enabling clients to extract useful insights from extensive datasets. These tools are geared towards various sectors, such as shipbuilding, cybersecurity, and healthcare planning.

How is the business performing?

In contrast to giving impressions of being at the forefront of advanced sectors, BigBear.ai’s real-world performance appears underwhelming. The company’s first-quarter revenue increased by only 5% compared to the previous year, amounting to $34.8 billion. Although the operating losses appeared to decrease from $98.1 million to $21.2 million, this reduction was primarily due to a one-time $85 million goodwill impairment charge resulting from its acquisition of Pangiam last year, rather than indicating a consistent improvement in the financial outlook.

BigBear.ai modifies its Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA) by excluding unusual expenses such as goodwill write-offs and restructuring costs. This adjustment reveals that the company’s losses have grown significantly, nearly five times, from $1.6 million to a staggering $7 million.

In spite of facing difficulties, management remains hopeful, with CEO Kevin McAleenan pointing out promising early indications that their strategic direction is being well-received. By 2025, Big Bear.ai intends to fortify its foundation by concentrating on areas like border security, trade, and shipbuilding. These initiatives appear to align with the Trump administration’s priorities, leading some to question if the company is merely capitalizing on headlines rather than discovering genuine competitive advantages.

Is BigBear.ai an alternative to Palantir?

At first glance, BigBear.ai seems quite akin to its competitor, Palantir Technologies. They both provide big data analytics and run AI-driven software-as-a-service (SaaS) businesses with a substantial focus on the national security sector. However, these are mainly the points where their resemblance ends.

In contrast to BigBear.ai experiencing only a 5% increase in annual sales, Palantir saw an impressive 39% jump, partly due to securing prestigious contracts from the U.S. Department of Defense and NATO. However, despite its rapid growth, Palantir’s price-to-sales (P/S) ratio stands at 122, suggesting it may be overpriced compared to other stocks with similar growth rates. While BigBear.ai has a lower price tag, its struggles with growth and escalating cash burn make it a less attractive alternative when weighing investment options.