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Valued at $440 million by market cap, BigBear.ai (BBAI) provides enterprise-facing artificial intelligence (AI) and machine learning services. While several AI stocks have delivered outsized gains to shareholders in the last two years, BigBear.ai continues to trail the broader markets.
Today, BBAI stock trades 89% below all-time highs, and has lost 13% year-to-date.
After its latest earnings report, let’s see if the AI tech stock can stage a comeback.
Is BBAI Stock a Good Buy?
BigBear.ai has two primary business segments. The Cyber & Engineering business offers technology and management consulting services, and focuses on verticals such as cloud engineering, cybersecurity, computer network operations, systems engineering, and program planning. The Analytics segment focuses on verticals such as big data computing and predictive and prescriptive analytics solutions. These solutions assist customers in integrating and interpreting data to accelerate decision-making.
BBAI has increased its sales from $73.6 million in 2019 to $155 million in 2023. In its earnings report for Q3 of 2024, released on Nov. 6, the AI platform company reported revenue of $41.5 million, up from $33.98 million in the year-ago period. It posted a loss of $0.05 per share, which was narrower than the consensus estimate for a loss of $0.07 per share. However, BBAI stock fell by more than 9% on the day, as revenue was well below estimates of $45 million.
Due to higher-margin commercial solutions, the company’s gross margins rose to 25.9% from 24.7% in the last 12 months. These improving gross margins and a focus on cost management have allowed BigBear.ai to improve its adjusted EBITDA (earnings before interest, tax, depreciation, and amortization) to $0.9 million, up from $0.2 million last year.
For the full fiscal year 2024, BigBear.ai forecasts revenue between $165 million and $180 million, which includes contributions from its acquisition of Pangiam a few months back. Comparatively, analysts forecast 2024 sales at $171.8 million.
BigBear.ai CEO Mandy Long said the company might struggle with cautious AI spending from enterprises and governments in the near term, which could result in lumpy business performance going forward.
Is BBAI Stock Undervalued?
BigBear.ai ended Q3 with a backlog of $437 million, providing investors with some degree of revenue visibility. Moreover, the company was recently awarded a $165 million production contract with the U.S. Army for GFIM production services. BigBear.ai has worked with the U.S. Army in the last three years to transform 15 legacy systems into an intelligence automation platform.
Analysts tracking BBAI stock expect it to increase revenue to $173.7 million in 204 to $202.4 million in 2025. Comparatively, the adjusted loss per share is forecast to narrow from $0.40 in 2023 to $0.20 in 2025.
Out of the four analysts covering BBAI stock, three recommend a “strong buy” and one recommends a “hold”. The average target price for the AI stock is $3, but one brokerage firm weighed in with a new Street-high forecast after earnings.
According to Cantor Fitzgerald, BigBear.ai's backlog represents a growth of 156.7% year over year, driven by several government contracts. Moreover, the brokerage firm believes that the company’s positive EBITDA margin and a focus on cost initiatives make it a top investment choice right now.
As a result, the analysts initiated coverage on BBAI stock with an “Overweight” rating and a 12-month target price of $3.50, representing expected upside of nearly 99% from current levels.
On the date of publication, Aditya Raghunath did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
