BigBear.ai: Is it Meme Stock or Growth Stock?

Investors are always on the lookout for the next big opportunity, and the rise of BigBear.ai has caught the attention of many. On December 8, 2021, BigBear.ai(BBAI) went public by merging with a special purpose acquisition company (SPAC). Since then, it has become a hot topic on Reddit, sparking debates among investors. The question on everyone's mind is whether BigBear.ai is a meme stock driven by online hype or a growth stock with strong long-term potential.

What Happened to BigBear.ai Stock?

Since going public, BigBear.ai's shares opened at $9.84 on the first day, reached an all-time high of $12.69 on April 13, 2022, but now trade at about $1.50. Like many other SPAC-backed tech companies, BigBear.ai failed to meet its lofty growth estimates. Rising interest rates have further crushed its valuations, highlighting its persistent losses and messy balance sheet.

BigBear.ai aims to build data mining and analytics tools that run on edge networks, preferring smaller modules that can be integrated into its clients' existing infrastructures. Despite the promising nature of its technology, analysts believe that BigBear.ai has set overly ambitious goals. According to its financial metrics since debuting, the company has struggled to meet its own forecasts, making it easy to overlook the potential of its technology

The company primarily attributed its slowdown to macroeconomic headwinds and the bankruptcy of its major customer, Virgin Orbit, in 2023. However, it also likely overestimated its growth potential and underestimated the competitive challenges. This miscalculation contributed to the resignation of its CEO, Reggie Brothers, in October 2022, and led to the stock plummeting nearly 90% from its all-time high.

Why are investors still interested in BigBear.ai's stock?

Despite its recent challenges and volatility, investors remain interested in BigBear.ai's stock for several reasons. Here are the key factors:

New Leadership and Strategic Moves

New CEO: Mandy Long, who took over as CEO, has been actively working to stabilize the business. Her strategies include:

• Acquisition of Pangiam: This all-stock takeover aims to boost near-term revenue and enhance BigBear.ai's capabilities in Vision AI for national security, supply chain management, and digital identity.
• Securing Government Contracts: New contracts have been secured, which are expected to provide a steady revenue stream.
• Cost-Cutting Measures: Aggressive cost-cutting efforts have turned BigBear.ai's adjusted EBITDA and cash flow positive in the second half of 2023.

Positive Financial Projections

• Revenue Growth: Analysts expect BigBear.ai's revenue to rise by 28% to $199 million in 2024, driven by the Pangiam acquisition. By 2025, a further 13% increase to $225 million is anticipated.
• Improving EBITDA: The adjusted EBITDA loss is expected to narrow to $3 million in 2024, with a positive turn projected for 2025.

Insider Buying

Insider Confidence: Over the past three months, insiders have been net buyers, purchasing nearly three times as many shares as they sold, even as the stock declined by nearly 30%.

Short Interest

Potential for Short Squeeze: More than 10% of BigBear.ai's float was still shorted as of April 30, 2024. Any positive news could trigger a short squeeze, driving the stock price higher.

Market Position and Potential

AI and Data Analytics: BigBear.ai operates in the growing fields of AI, data mining, and analytics, which have significant long-term potential. The company's modular approach to integrating its tools into existing systems is seen as a competitive advantage.

Is BigBear.ai a Meme Stock or a Growth Stock?

BigBear.ai continues to attract attention on Reddit, but it stands out from traditional meme stocks due to its relatively stable business model and low valuations. However, considering it a growth stock is also questionable because it heavily relies on the acquisition of Pangiam to boost revenues. At this point, some investors might view BigBear.ai as an undervalued growth stock, but it remains a highly speculative bet facing numerous unpredictable challenges.

Is BigBear.ai a Good Investment?

BigBear.ai presents a mix of opportunities and risks for investors. On the positive side, the company's revenue guidance for 2024 aligns with analyst expectations, and it holds a Zacks Rank #2 (Buy), indicating potential near-term outperformance. However, there are significant challenges as well. The recent earnings report revealed substantial revenue and EPS misses, contributing to a considerable decline in the stock's value. Additionally, valuation metrics suggest that BigBear.ai is trading at a premium compared to its peers, adding another layer of risk for potential investors.