Key Points
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BigBear.ai posted 31% revenue growth in its most recent quarter.
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It has secured dozens of new deals and upgraded its guidance.
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The business, however, remains unprofitable and still possesses significant risks.
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Many growth investors who are optimistic about BigBear.ai Holdings (NYSE:BBAI) often believe that it has the potential to become the next Palantir Technologies. While it has a long way to go to get there, the company’s focus on artificial intelligence (AI) and close relationships with government agencies make it easy to draw comparisons.
The big difference is in financial performance. At more than $3 billion in profit, Palantir’s net income over the trailing 12 months is not only significantly higher than BigBear’s revenue but also higher than its market cap, which is currently around $1.2 billion.
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BigBear.ai did, however, recently post solid third-quarter numbers, potentially giving investors renewed hope that it’s on the right track. Could this spark a rally, and is the tech stock worth buying right now?
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BigBear.ai’s revenue growth reached 31% last quarter
On Oct. 27, BigBear.ai released its Q3 results, which looked impressive as the company’s top line rose by 31% to $43.6 million. It notes that it was its third consecutive quarter of organic growth. Arguably, however, that should be the norm for a growing business involved in AI, rather than it being a notable achievement.
The company has also secured more contracts, with over 25 new deals since the previous quarter, totaling over $225 million. In light of the strong performance, BigBear.ai boosted its full-year revenue guidance to $150 million to $165 million, representing a 5% increase over its previous range.
BigBear.ai incurred an operating loss of just under $100 million during the period. However, that was largely due to a goodwill impairment charge of $76.7 million. Without that, its operating loss would have been $23.2 million, up modestly from $21.9 million in the prior-year period.
The business has been making progress, but it may be too early to invest
BigBear.ai’s recent results were encouraging, particularly on the top line. But the business still has significant risks that could dissuade many investors from buying it. It operates in a highly competitive space, and while it is growing rapidly now, its growth rate has been volatile in the past. And with significant losses and cash burn, the risk of dilution remains high.
The stock has lost more than half of its value this year, and while its valuation may appear low, that doesn’t mean it can’t still go lower. Given all the uncertainty around its operations, I’d put it on a watch list. For most growth investors, this stock may be too risky and unproven to invest in just yet.
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David Jagielski, CPA has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Palantir Technologies. The Motley Fool has a disclosure policy.
