Risks Still Elevated At These Prices As BigBear.ai Holdings, Inc. (NYSE:BBAI) Shares Dive 26%

The BigBear.ai Holdings, Inc. (NYSE:BBAI) share price has softened a substantial 26% over the previous 30 days, handing back much of the gains the stock has made lately. Regardless, last month's decline is barely a blip on the stock's price chart as it has gained a monstrous 327% in the last year.

In spite of the heavy fall in price, when almost half of the companies in the United States' IT industry have price-to-sales ratios (or "P/S") below 2.3x, you may still consider BigBear.ai Holdings as a stock not worth researching with its 14.2x P/S ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/S.

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Check out our latest analysis for BigBear.ai Holdings

How Has BigBear.ai Holdings Performed Recently?

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. If not, then existing shareholders may be very nervous about the viability of the share price.

Keen to find out how analysts think BigBear.ai Holdings' future stacks up against the industry? In that case, our free report is a great place to start.

What Are Revenue Growth Metrics Telling Us About The High P/S?

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.

Taking a look back first, we see that the company managed to grow revenues by a handy 3.5% last year. Although, the latest three year period in total hasn't been as good as it didn't manage to provide any growth at all. Therefore, it's fair to say that revenue growth has been inconsistent recently for the company.

Looking ahead now, revenue is anticipated to slump, contracting by 6.5% during the coming year according to the three analysts following the company. That's not great when the rest of the industry is expected to grow by 20%.

With this information, we find it concerning that BigBear.ai Holdings is trading at a P/S higher than the industry. It seems most investors are hoping for a turnaround in the company's business prospects, but the analyst cohort is not so confident this will happen. Only the boldest would assume these prices are sustainable as these declining revenues are likely to weigh heavily on the share price eventually.

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

BigBear.ai Holdings' shares may have suffered, but its P/S remains high. It's argued the price-to-sales ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

For a company with revenues that are set to decline in the context of a growing industry, BigBear.ai Holdings' P/S is much higher than we would've anticipated. In cases like this where we see revenue decline on the horizon, we suspect the share price is at risk of following suit, bringing back the high P/S into the realms of suitability. Unless these conditions improve markedly, it'll be a challenging time for shareholders.

We don't want to rain on the parade too much, but we did also find 4 warning signs for BigBear.ai Holdings (2 can't be ignored!) that you need to be mindful of.

It's important to make sure you look for a great company, not just the first idea you come across. So if growing profitability aligns with your idea of a great company, take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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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.