Synthetic intelligence (AI) represents some of the transformative technological shifts in fashionable historical past. BigBear.ai (BBAI -5.54%) has capitalized on this revolution by its AI-powered analytics options, driving its shares up 136% over the previous six months.
Latest authorities contract wins and strengthening monetary efficiency have attracted vital investor curiosity on this rising participant. Let’s look at whether or not the inventory stays a purchase at present ranges or if traders ought to contemplate various methods to achieve publicity to this prime AI inventory.
Picture supply: Getty Photographs.
New management drives transformation
On Jan. 15, BigBear.ai appointed Kevin McAleenan as chief govt officer. McAleenan, who had been serving as the corporate’s president, stepped into the CEO function, bringing in depth expertise from each the federal government and personal sectors, together with his earlier place as appearing secretary of the U.S. Division of Homeland Safety.
McAleenan’s background contains co-founding Pangiam, which BigBear acquired in 2024, and practically twenty years of presidency service, together with his function as commissioner of U.S. Customs and Border Safety. His distinctive mixture of entrepreneurial success and deep understanding of nationwide safety priorities positions the corporate to increase its presence within the protection and safety markets.
Monetary momentum accelerates
BigBear.ai delivered sturdy income development of twenty-two.1% 12 months over 12 months within the third quarter of 2024, reaching $41.5 million. The corporate additionally improved its gross margin to 25.9%, up from 24.7% within the prior 12 months, benefiting from an elevated combine of business options and improved operational effectivity.
The quarter nonetheless resulted in a web lack of $12.2 million, in contrast with web earnings of $4 million in Q3 2023, primarily attributed to non-cash warrant valuation adjustments. Regardless of that, the corporate achieved optimistic adjusted earnings earlier than curiosity, taxes, depreciation, and amortization (EBITDA) of $0.9 million and maintained a strong backlog of $437 million, supporting future income projections.
Authorities contracts gas growth
BigBear.ai lately strengthened its authorities sector momentum with two vital contract wins. The corporate secured a five-year, $165 million sole-source prime contract with the U.S. Military to ship superior pressure administration options powered by AI analytics, strengthening its place in protection expertise.
As well as, BigBear.ai was awarded a subcontract by Idea Options underneath the Federal Aviation Administration’s (FAA) Data Know-how Revolutionary Procurement Strategic Sourcing program. This 10-year, multiple-award indefinite supply/indefinite amount contract has a shared ceiling of $2.4 billion throughout 14 firms and can allow the FAA to accumulate a full vary of IT capabilities and options.
A prudent choices technique
Regardless of current optimistic developments, the inventory’s valuation at 5.3 occasions trailing gross sales warrants cautious consideration, particularly for the reason that firm’s peer group trades at a mean of three.5 occasions trailing gross sales. Subsequently, traders searching for publicity to BigBear.ai with outlined threat would possibly contemplate a cash-secured put technique as a substitute for buying shares instantly.
For example, utilizing the Jan. 17 choices pricing, an investor may promote a January 2026 put possibility with a $3 strike worth. That commerce would generate roughly $1.10 per share, or $110 per contract, in premium earnings earlier than charges.
This technique gives a possible 37% return over the subsequent 12 months if the inventory stays above $3, but it surely’s vital to recollect that you’re obligated to purchase 100 shares per contract on the $3 strike worth if the choice is exercised (i.e., if the inventory worth falls beneath $3 at expiration). Whereas this premium may help offset any losses if the inventory declines, it’s going to restrict any positive aspects in alternate for this draw back safety ought to shares rally considerably increased.
The strategic benefit
BigBear.ai’s mix of skilled management, enhancing financials, and increasing authorities contracts paints a promising image. Nevertheless, after the inventory’s current surge, a cash-secured put technique gives a calculated strategy to this unstable AI participant.
This technique permits traders to gather a hefty premium whereas doubtlessly defining their threat, which is a prudent transfer in a market that may shortly flip from honey to a hornet’s nest. Whereas the upside is capped, the earnings cushions in opposition to potential declines, making it a strategic various to purchasing shares outright.
