BigBear.ai Holdings, Inc.'s (NYSE:BBAI) P/S Is Still On The Mark Following 25% Share Price Bounce

Despite an already strong run, BigBear.ai Holdings, Inc. (NYSE:BBAI) shares have been powering on, with a gain of 25% in the last thirty days. The last month tops off a massive increase of 121% in the last year.

After such a large jump in price, given around half the companies in the United States' IT industry have price-to-sales ratios (or "P/S") below 2.8x, you may consider BigBear.ai Holdings as a stock to avoid entirely with its 6.4x 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?

With revenue growth that's inferior to most other companies of late, BigBear.ai Holdings has been relatively sluggish. 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.

If you'd like to see what analysts are forecasting going forward, you should check out our free report on BigBear.ai Holdings.

Is There Enough Revenue Growth Forecasted For BigBear.ai Holdings?

There's an inherent assumption that a company should far outperform the industry for P/S ratios like BigBear.ai Holdings' to be considered reasonable.

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. Therefore, it's fair to say that revenue growth has been inconsistent recently for the company.

Shifting to the future, estimates from the four analysts covering the company suggest revenue should grow by 20% over the next year. Meanwhile, the rest of the industry is forecast to only expand by 11%, which is noticeably less attractive.

With this in mind, it's not hard to understand why BigBear.ai Holdings' P/S is high relative to its industry peers. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

The Key Takeaway

The strong share price surge has lead to BigBear.ai Holdings' P/S soaring as well. 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.

We've established that BigBear.ai Holdings maintains its high P/S on the strength of its forecasted revenue growth being higher than the the rest of the IT industry, as expected. It appears that shareholders are confident in the company's future revenues, which is propping up the P/S. It's hard to see the share price falling strongly in the near future under these circumstances.

Plus, you should also learn about these 3 warning signs we've spotted with BigBear.ai Holdings (including 2 which 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.