Why BigBear.ai's Impressive Backlog Comes With a Big Asterisk

The company has been securing contracts and adding to its backlog

While its results haven't looked all that impressive, growth investors have often pointed to the backlog as a sign of the strong demand for its AI-powered solutions, which include cybersecurity, predictive intelligence, and digital identity management

Although that backlog has been growing, here's why you may want to take a closer look at it before buying the stock

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BigBear's backlog isn't a guarantee of future revenue BigBear's backlog is an estimate of how much the dollar value of its contracts is worth, of which it hasn't yet done the work

It can give investors a good indication of future growth opportunities and just how much it is winning

Here's a breakdown of BigBear's backlog from its most recent quarterly filing, which was for the period March 31

However, the bulk of that was unexercised options

Unexercised options relate to the company's "existing contracts if our customer elects to exercise all of the options available in the contract. " As the name suggests, these are options based on the customer's discretion

Another significant line item is the unfunded backlog

This represents contract values "for which funding has not been appriated or otherwise authorized. " The funded backlog is the item that represents contracts where "funding is appriated or otherwise authorized. " This is the most solid and secure backlog, but it unfortunately accounts for just 5% of the total

The majority of the company's revenue and contracts are also from federal government contracts

Not only can this involve a lengthy apval cess, but that also means federal budgets will inevitably play a big role in determining just how much of BigBear's backlog, particularly to do with unexercised options and underfunded amounts, will be realized

Investors should focus on financials, not backlog While it's a great sign that BigBear

Ai is securing government contracts and adding to its backlog, relying on that may not be a good idea for investors, as it may not end up materializing or resulting in strong future growth

BigBear's growth has been limited in recent years

And the year before that, its top line was flat

And the worst-case scenario could see its growth rate remain in the low single digits

Then there's also the issue of its mounting losses

Over the trailing 12 months, BigBear

Based on fundamentals, its operations simply haven't looked impressive

BigBear is a risky and volatile stock to buy BigBear is sometimes seen as the next Palantir nologies, a top data analytics company involved with AI, which has secured many government contracts

But BigBear isn't fitable, growth has been lackluster, and its future is much more doubtful than Palantir's

The danger investors can make is in assuming that BigBear will a trajectory similar to Palantir's

The reality is that BigBear is a far riskier stock to own

While Palantir may be overvalued, BigBear is not only overvalued, but it's also highly unfitable, and hasn't shown much growth

It may be tempting to want to buy BigBear s in the hope the AI stock becomes the next Palantir, but for investors, the safest option may be to hold off on BigBear

This is a highly risky that still has a lot to ve

David Jagielski has no position in any of the stocks mentioned

The Motley Fool has positions in and recommends Palantir nologies

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