Down 24%, Should You Buy the Dip on BigBear.ai?

Many companies that sell artificial intelligence (AI) services have seen their share price skyrocket over the past couple of years. AI data analytics company BigBear.ai (NYSE: BBAI) has seen significant volatility, but it has also benefited from bullish market sentiment.

The company's share price has surged 142% over the past 12 months, dwarfing the 11% return of the S&P 500. That said, it has also lost a lot of ground lately with a 24% decline in just the past three months.

The recent dip no doubt has some investors wondering if this is a great time to buy BigBear.ai stock or a warning sign to stay away. The company still has a lot to prove, and here are three reasons investors should leave this AI stock alone right now.

Image source: Getty Images.

1. BigBear's sales are unimpressive

Small companies that are tapping into such a fast-growing and in-demand market like AI should experience rapid sales growth. And yet BigBear managed to increase its revenue just 5% year over year to $34.8 million in the most recent quarter.

Unfortunately, this appears to be a pattern for the company. Revenue was flat in 2023 and up just 2% in 2024. This year, management says sales could increase 7% (at the midpoint of its guidance).

That's unimpressive growth for such a young AI company. For comparison's sake, fellow AI data analytics company Palantir Technologies grew sales 29% last year to $2.9 billion.

Typically, high-growth companies experience lots of top-line expansion early on, and investors hope that momentum eventually leads to profits. But with BigBear.ai, sales growth has been missing for years.

2. The company is far from profitable

BigBear.ai reported an adjusted EBITDA loss of $7.0 million in the first quarter, which was worse than its loss of $1.6 million in the year-ago quarter.

Management said costs were primarily driven by increased research and development expenses as well as recurring selling, general, and administrative (SG&A) costs. In either case, the company can't afford to have these expenses continue to outpace sales.

For investors hoping profits will soon follow the same pattern as its astronomical share price returns over the past couple of years, it's likely to be a very long wait.

3. It has had three CEOs over the past four years

This may not be the typical reason investors should steer clear of a company, but it certainly raises some red flags. Leadership is crucial to a company's success, so it's worrying to see BigBear.ai under its third CEO since it went public in 2021.

The current CEO, Kevin McAleenan, has only been at the helm since January. He was the acting Secretary of the U.S. Department of Homeland Security during the first Trump administration. This government connection has some investors hoping that BigBear.ai will be able to secure more government contracts. But what they should really be hoping for is McAleenan to stick around long enough to be able to execute a long-term vision for the company.

Sit out this speculative stock

When you add up the company's leadership changes, weak sales growth, and continued losses, it's clear to me the stock is not a buy right now.

In a market full of compelling AI stocks, there simply isn't much that's appealing about a speculative bet on BigBear.ai.

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Chris Neiger has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Palantir Technologies. The Motley Fool has a disclosure policy.