BigBear.ai Holdings, Inc.'s (NYSE:BBAI) 53% Dip Still Leaving Some Shareholders Feeling Restless Over Its P/SRatio

BigBear.ai Holdings, Inc. (NYSE:BBAI) shareholders won't be pleased to see that the share price has had a very rough month, dropping 53% and undoing the prior period's positive performance. Still, a bad month hasn't completely ruined the past year with the stock gaining 30%, which is great even in a bull market.

In spite of the heavy fall in price, given around half the companies in the United States' IT industry have price-to-sales ratios (or "P/S") below 3x, you may still consider BigBear.ai Holdings as a stock to avoid entirely with its 5.4x P/S ratio. However, the P/S might be quite high for a reason and it requires further investigation to determine if it's justified.

Check out our latest analysis for BigBear.ai Holdings

What Does BigBear.ai Holdings' P/S Mean For Shareholders?

BigBear.ai Holdings could be doing better as it's been growing revenue less than most other companies lately. It might be that many expect the uninspiring revenue performance to recover significantly, which has kept the P/S ratio from collapsing. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

Want the full picture on analyst estimates for the company? Then our free report on BigBear.ai Holdings will help you uncover what's on the horizon.

How Is BigBear.ai Holdings' Revenue Growth Trending?

In order to justify its P/S ratio, BigBear.ai Holdings would need to produce outstanding growth that's well in excess of the industry.

If we review the last year of revenue, the company posted a result that saw barely any deviation from a year ago. Fortunately, a few good years before that means that it was still able to grow revenue by 11% in total over the last three years. Accordingly, shareholders probably wouldn't have been overly satisfied with the unstable medium-term growth rates.

Looking ahead now, revenue is anticipated to climb by 9.6% during the coming year according to the four analysts following the company. That's shaping up to be similar to the 10% growth forecast for the broader industry.

With this in consideration, we find it intriguing that BigBear.ai Holdings' P/S is higher than its industry peers. It seems most investors are ignoring the fairly average growth expectations and are willing to pay up for exposure to the stock. Although, additional gains will be difficult to achieve as this level of revenue growth is likely to weigh down the share price eventually.

The Final Word

A significant share price dive has done very little to deflate BigBear.ai Holdings' very lofty P/S. Typically, we'd caution against reading too much into price-to-sales ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

Analysts are forecasting BigBear.ai Holdings' revenues to only grow on par with the rest of the industry, which has lead to the high P/S ratio being unexpected. Right now we are uncomfortable with the relatively high share price as the predicted future revenues aren't likely to support such positive sentiment for long. A positive change is needed in order to justify the current price-to-sales ratio.

You should always think about risks. Case in point, we've spotted 3 warning signs for BigBear.ai Holdings you should be aware of, and 1 of them shouldn't be ignored.

Of course, profitable companies with a history of great earnings growth are generally safer bets. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.