Artificial intelligence is expected to take a significant step forward this year, but it’s already hit a few stumbling blocks. Revenue from AI hasn’t been quite as expected yet, and even the biggest players like Nvidia and Microsoft have seen their hot stocks cool down of late.
BigBear.ai (NYSE: BBAI) has had its moments in the sun, including an incredible 260% one-day gain in January 2023. But those moments have been few and far between, and BBAI is now trading 80.5% lower than its high in the spring of 2022.
After a brief run-up prior to the earnings release in March of this year, the stock pushed up to $4.80 per share. But lackluster revenue for the 4th quarter of 2023 caused BBAI to lose 48.75% in short order.
The company, which touts itself as a leader in AI-powered decision intelligence platforms, lost steam as its main customer, Virgin Orbit, went bankrupt.
However, BigBear.ai also made major strides in the quarter, including a blockbuster acquisition and an extension of its partnerships with multiple US military branches.
Maybe more impressive was the deal with Amazon Web Services Professional Services (AWS ProServe) that will put BigBear.ai’s software in AWS ProServe’s customers’ warehouses.
So is BigBear.ai stock a buy?
Why Did BigBear.ai Stock Drop?
After the company’s 4th quarter earnings release, investors sold off because quarterly revenue of $40.6 million was only 0.5% above where BigBear.ai was last year. Analysts were expecting closer to 6% revenue growth, another reason why BBAI plummeted after the report.
BigBear.ai posted a net loss of $21.26 million compared to the $29.9 million loss a year prior. That improvement was spurred by better operating margins, which were up from 29.2% in the 4th quarter of 2022 to 32.1% in 2023. But diluted earnings per share (EPS) of -$0.14 were also a surprise for analysts, who expected -$0.05.
The company reported $155 million in revenue in 2023, which was identical to 2022. The lack of revenue growth weighed on investors, but BigBear.ai gave guidance that it expects $195 million to $215 million in revenue in 2024. It also ended the year with $32.6 million in cash compared to $12.6 million at the end of 2022.
Will BigBear.ai Stock Bounce Back?
If analysts forecasts are correct, BigBear.ai stock can bounce to as high as $4 per share over the next year, a 65.6% leap from the current price level.
While the company’s financials weren’t what investors wanted, there are still plenty of growth opportunities for BigBear.ai. It just finalized the acquisition of Pangiam Intermediate Holdings for around $70 million in stock.
Pangiam is known for its biometric technology, particularly for facial recognition, which can be used in tandem with Bigbear.ai’s computer vision technology. The combined company has the potential to be a leader in Vision AI, which seeks to replicate human vision in computers.
The immediate customer base will be in the defense sector, but Bigbear.ai hopes its enhanced platform will be in demand by airlines, airports, and companies that verify identities.
The company has already had successful partnerships with the Air Force, and in December it announced it will partner with the US Army. In the $17.9 million deal, BigBear.AI will create a Global Force Information Management system for the Army that is designed to keep tabs on everything from equipment to troop readiness.
In December, BigBear.ai was invited by the Navy to participate in its AI Task Force. The company exhibited its computer vision technology and showed how it applied to Naval operations. It went so well that the Navy invited BigBear.ai back for its upcoming exercise in late 2024.
Arguably the biggest news from the quarter was the company’s deal with AWS ProServe. BigBear.ai’s ProModel event simulation and predictive analytics software is going to be deployed in the warehouses of AWS ProServe’s customers. That puts BigBear.ai’s technology at the forefront of global logistics and supply chain operations.
How Do Analysts Rate BigBear.ai Stock?
Even though the company has promising prospects, stagnating revenue has caused analysts to largely disregard the stock. There are only six analysts who have issued ratings on BBAI, three of whom rate it as a Buy. The highest forecast has BBAI reaching $5 over the next year, a 103.3% gain.
The other three analysts believe the stock is a hold, and the lowest forecast is $3 per share, which represents a 22% gain from where the stock currently trades.
Is BigBear.ai Stock Undervalued?
The analysts that have gone on record seem to believe that BBAI has the chance to bounce back in a big way. That conclusion appears to be supported by the company’s price-to-sales (P/S) value of 1.65. That is far lower than fellow data analytics company Palantir Technologies, which has a P/S of 26.8.
It could certainly be argued that Palantir’s valuation is justified because it has a stronger hold on market share than BigBear.ai does. That is proven by Palantir’s many consecutive quarters of double-digit percentage revenue growth.
So while BigBear.ai is certainly trading at a discount compared to the technology industry as a whole as well as competitors, it’s likely going to require higher sales to lift the stock’s valuation significantly. The company has made strong strides in that department with new acquisitions and partnerships, but it may be some time before they impact the top line.
BigBear.ai Stock: Buy or Sell?
How long? That’s the big question on every BBAI holder’s mind. Investors have been behind the company for a while, as evidenced by the recent gains before the earnings release. But so far, BigBear.ai hasn’t been able to deliver. As time goes by, more investors may lose faith that the company ever will.
But BigBear.ai hasn’t been content to coast, and management made big acquisitions and forged new partnerships in the 4th quarter. Improved margins also pared away at losses. The top brass gave guidance that forecasts 25% to 38.7% revenue growth in 2024.
The stock is trading at an attractive valuation, and if the moves BigBear.ai has made pay off, BBAI could certainly reward patient investors.
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