Is Now The Time To Buy BigBear.ai Stock?

After reporting a disappointing quarter on August 11, BigBear.ai (NYSE:BBAI), an AI solutions provider specializing in national security, saw its stock drop nearly 30% in extended trading. The company’s sales fell 18% year-over-year, missing consensus estimates by over 20% due to lower volume on certain U.S. Army programs. Additionally, the company’s net loss grew, and it withdrew its full-year adjusted EBITDA guidance while lowering its revenue outlook, citing disruptions in federal contracts.

Given these developments, the stock’s plunge to below $5 is understandable. Following its earnings announcements, the stock has a history of posting negative one-day returns more than 85% of the time, a trend we discussed in our previous note. The key question is whether BBAI stock is a good buy after this decline. We believe it is not. Despite the recent drop, the stock remains unattractive due to several significant concerns, particularly its high valuation relative to its performance.

Our conclusion is based on an analysis of BigBear.ai’s current valuation, recent operating performance, and historical financial condition. A detailed review of key parameters—including Growth, Profitability, Financial Stability, and Downturn Resilience—reveals that the company has a weak operating performance and financial condition.

That being said, if you seek an upside with less volatility than holding an individual stock, consider the High Quality Portfolio, which has comfortably outperformed its benchmark — a combination of S&P 500, Russell, and S&P midcap index, and achieved returns exceeding 91% since its inception. Separately, see – SoundHound AI: More Upside For SOUN Stock?

Image by Palle from Pixabay

How Does BigBear.ai’s Valuation Look vs. The S&P 500?

Going by what you pay per dollar of sales or profit, BBAI stock looks expensive compared to the broader market. BigBear.ai has a price-to-sales (P/S) ratio of 7.2 vs. a figure of 3.2 for the S&P 500

How Have BigBear.ai’s Revenues Grown Over Recent Years?

BigBear.ai’s Revenues have seen a decline over recent years.

• BigBear.ai has seen its top line grow at an average rate of 3.4% over the last 3 years (vs. an increase of 5.7% for S&P 500)
• Also, its quarterly revenues plunged 18% to $32 Mil in the most recent quarter from $40 Mil a year ago (vs. 5.2% improvement for S&P 500)

How Profitable Is BigBear.ai?

BigBear.ai’s profit margins are considerably worse than most companies in the Trefis coverage universe.

• BigBear.ai’s Operating Income over the last four quarters was $-127 Mil, which represents a very poor Operating Margin of -83% (vs. 18.6% for S&P 500)
• BigBear.ai’s Operating Cash Flow (OCF) over this period was $-27 Mil, pointing to a very poor OCF Margin of -17.9% (vs. 20.3% for S&P 500)
• For the last four-quarter period, BigBear.ai’s Net Income was $-449 Mil — indicating a very poor Net Income Margin of -294.5% (vs. 12.7% for S&P 500)

Does BigBear.ai Look Financially Stable?

BigBear.ai’s balance sheet looks very strong.

• BigBear.ai’s Debt figure was $113 Mil at the end of the most recent quarter, while its market capitalization is $1.5 Bil. This implies a very strong Debt-to-Equity Ratio of 7.7% (vs. 21.8% for S&P 500). [Note: A low Debt-to-Equity Ratio is desirable]
• Cash (including cash equivalents) makes up $391 Mil of the $599 Mil in Total Assets for BigBear.ai.  This yields a very strong Cash-to-Assets Ratio of 65.2% (vs. 6.9% for S&P 500)

How Resilient Is BBAI Stock During A Downturn?

BBAI stock has fared much worse than the benchmark S&P 500 index during some of the recent downturns. While investors have their fingers crossed for a soft landing by the U.S. economy, how bad can things get if there is another recession? Our dashboard How Low Can Stocks Go During A Market Crash captures how key stocks fared during and after the last six market crashes.

Inflation Shock (2022)

• BBAI stock fell 95.0% from a high of $12.69 on 13 April 2022 to $0.63 on 29 December 2022, vs. a peak-to-trough decline of 25.4% for the S&P 500
• The stock is yet to recover to its pre-Crisis high
• The highest the stock has reached since then is $9.78 on 13 February 2025, and it currently trades at around $5
• See – Buy or Sell BBAI Stock – for more details.

Putting All The Pieces Together: What It Means For BBAI Stock

In summary, BigBear.ai’s performance across the parameters detailed above is as follows:

• Growth: Weak
• Profitability: Very Weak
• Financial Stability: Very Strong
• Downturn Resilience: Very Weak
• Overall: Weak

The Verdict

Overall, BigBear.ai’s performance has been weak across its key financial metrics. The widening losses and withdrawal of guidance are unlikely to be well-received by investors. Furthermore, the recent 30% plunge doesn’t necessarily make the stock cheaper. BigBear.ai still trades at 7.2 times its trailing revenues, which is significantly higher than its average price-to-sales ratio of 3.3 over the last four years. We believe there could be more downside for the stock, and investors should exercise caution.

Of course, we could be wrong. Investors might be willing to “buy the dip,” especially considering the company’s strong $380 million backlog and the rising demand for AI in the defense sector. Our take on factors that could drive BBAI stock higher offers more details. However, the risk element appears to be very high with investing in BBAI stock at this juncture. Now, we apply a risk assessment framework while constructing the 30-stock Trefis High Quality (HQ) Portfolio, which has a track record of comfortably outperforming the S&P 500 over the last 4-year period. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index; less of a roller-coaster ride, as evident in HQ Portfolio performance metrics.

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