In the fiercely competitive tech landscape, three companies striving for investor attention in the rapidly evolving subsector of data analytics are Snowflake (NYSE: SNOW), Palantir (NYSE: PLTR), and BigBear.ai (NYSE: BBAI). While Snowflake and Palantir have established themselves as key players, BigBear.ai emerges as a newer contender aiming to carve out its niche in this vast market. So, is it worth investors’ consideration to include this up-and-coming data analytics expert in their stock portfolios?
BigBear.ai by the numbers
When examining valuation metrics in the data analytics sector, notable differences emerge among key players.
Snowflake, buoyed by investor optimism, boasts a high price-to-sales (P/S) ratio of 18.6. Palantir’s P/S ratio of 24.1 appears even richer, potentially signaling overvaluation compared to Snowflake. In contrast, BigBear.ai presents a more modest P/S ratio of 2.0.
However, the picture changes significantly when shifting focus to profit-based metrics. Snowflake and Palantir trade at triple-digit multiples to forward earnings estimates, with price-to-free-cash-flow ratios ranging between 60 and 80. These figures may deter value investors.
On the other hand, BigBear.ai has yet to demonstrate meaningful profitability. While the company has recently achieved positive adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) and operating cash flows on a single-quarter basis, its trailing four-quarter results remain negative. Consequently, traditional valuation metrics may not be applicable to this unprofitable enterprise.
Despite profit-based metrics being only one aspect of valuation, sustained business growth is essential for identifying future winners, particularly in the growth-oriented tech sector. Snowflake exhibits impressive historical and projected earnings-per-share (EPS) growth, partially justifying its premium valuation. While Palantir has shown decent growth, it has not fully convinced everyone of its ability to maintain momentum. As a newcomer, BigBear.ai still needs to establish its long-term growth trajectory.
In the current landscape, while Snowflake and Palantir experienced robust revenue growth during the AI boom of 2023, BigBear.ai’s revenue growth actually decelerated.
A quick overview
When examining BigBear.ai alongside its larger rivals:
Snowflake: Renowned for its cloud-based platform and scalability, Snowflake faces scrutiny due to its high valuation, limited profits, and reliance on a few major customers.
Palantir: Notable for its work with government agencies and emphasis on artificial intelligence, Palantir’s opaque business model and heavy dependence on government contracts cast doubt on its long-term outlook.
BigBear.ai: As a newcomer, BigBear.ai focuses on artificial intelligence and machine learning solutions for both government and commercial clients. While its lower valuation and promising technology are appealing, its short operating history and lack of profitability pose significant risks. Additionally, the company’s heavy reliance on government contracts, even more so than Palantir, adds another layer of uncertainty.
To buy, or not to buy, that is the question
Determining whether BigBear.ai stock is a better investment compared to Snowflake or Palantir today is a nuanced decision.
While BigBear.ai’s lower valuation may initially appear attractive, it’s important to consider that the company is still in its early stages and has yet to prove itself, as evidenced by its slower revenue growth.
For investors prioritizing proven growth and stability, Snowflake might be the preferred choice despite its premium price. Palantir, with its intriguing technology and government ties, could appeal to those seeking high-growth opportunities, albeit with increased risk.
BigBear.ai, with its potential for significant growth but inherent uncertainties, may appeal more to speculative investors comfortable with higher levels of risk. However, it’s worth noting that growth investors may not fully engage until the company demonstrates accelerated growth, while value investors may not yet be considering BigBear.ai.
Ultimately, whether to invest in BigBear.ai hinges on individual risk tolerance and investment objectives. Conduct thorough research and carefully assess potential rewards against risks before making a decision. Personally, I would consider revisiting Snowflake or Palantir before considering an investment in BigBear.ai stock.
