We came across a bearish thesis on BigBear.ai Holdings, Inc. (BBAI) on wallstreetbets Subreddit Page by rudius. In this article, we will summarize the bears’ thesis on BBAI. BigBear.ai Holdings, Inc. (BBAI)’s share was trading at $9.78 as of Feb 13th.
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BigBear.AI (BBAI) has witnessed a notable rally recently, but the stock’s current trajectory presents a concerning investment opportunity. While the market has been excited about catalysts such as the appointment of Kevin McAleenan as CEO, government contracts, and a growing backlog, a deeper look into these factors reveals potential risks that could make this rally unsustainable.
McAleenan’s appointment has stirred speculation about his relationship with former President Trump and how it could help secure future government contracts. However, McAleenan’s brief tenure as DHS Secretary under Trump and the publicized tension between the two raise doubts. Their strained relationship suggests that McAleenan’s connection to Trump may not be as beneficial as some hope and could even hinder BBAI’s growth prospects. McAleenan’s outspoken views on Trump, especially his criticisms following the Capitol insurrection, further complicate the idea of him leveraging these ties to secure future contracts.
From a financial perspective, BBAI’s situation looks equally concerning. The company is burning through cash at a rapid pace, with $23.4 million in operating losses for the trailing twelve months and just $65.6 million in reserves—providing only 2.8 years of runway if no additional funding is secured. This is before accounting for debt servicing or unexpected costs. BBAI’s $196 million debt, which was recently restructured with a maturity extension to 2029, will likely force the company to seek additional capital, which could mean further dilution for shareholders. The company is also largely intangible, relying on software IP and goodwill from acquisitions, which leaves it vulnerable in the event of a liquidation scenario.
While BBAI’s backlog of $437 million offers some hope, with key contracts from the Army and FAA, it is not enough to turn the company’s financial position around in the near term. The Army contract, for example, provides just $8.6 million in annual gross profit, and BBAI’s total backlog may yield around $15.7 million in annual gross profit at best. Operating expenses are rising, and BBAI’s projected operating losses for this year are substantial, reaching $70.9 million annually.
Moreover, the company’s future prospects hinge on its ability to generate additional contracts in an increasingly competitive AI space. Despite some positive headlines, BBAI is at risk of operational and contract-related setbacks, which are not reflected in its current stock price. With no guarantee that future contracts will materialize and mounting financial challenges, the stock seems overvalued.
In conclusion, while the recent rally in BBAI may seem promising to retail investors, its fundamentals remain weak. The company’s need for additional capital, its growing debt load, and the uncertainty surrounding future contracts point to significant downside risk. Investors should approach with caution, as further share dilution and potential operational setbacks could drive the stock lower.
BigBear.ai Holdings, Inc. (BBAI) is not on our list of the 30 Most Popular Stocks Among Hedge Funds. As per our database, 7 hedge fund portfolios held BBAI at the end of the third quarter which was 9 in the previous quarter. While we acknowledge the risk and potential of BBAI as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than BBAI but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article was originally published at Insider Monkey.