Why BigBear.ai Stock Crashed This Week

view original post

What happened

Week to date, shares of BigBear.ai (BBAI -1.64%) were down 24% as of 11:07 a.m. on Friday, according to data provided by S&P Global Market Intelligence. Following last week’s jump on the news BigBear.ai had won an indefinite quantity (IDIQ) contract with the U.S. Air Force, the company found itself in the crosshairs of a short-seller that sent the stock plunging.

So what

BigBear.ai is a leader in analytics and cyber engineering using artificial intelligence. The recently announced 10-year contract worth $900 million to deliver capabilities, systems, and synthetic environments to the U.S. Air Force appears to be a huge win on the surface, but its status as an IDIQ contract implies that BigBear may not receive as much from this deal as the headlines suggest.   

In a tweet, Iceberg Research revealed its short position on the stock via put options. Iceberg clearly believes the potential value of the deal is not enough to justify a 260% increase in the stock in one trading session. 

William Blair analyst Bhavan Suri noted that there were other vendors awarded in this contract. Since BigBear has to compete with other suppliers, investors cannot be certain that BigBear will gain from this deal.

Now what

Investing in a small-cap stock without a track record of delivering predictable growth is generally not a recipe for success. A large pop on a single piece of news for a struggling company is a scenario that short-sellers look for to make profitable trades.

Perhaps this news will serve as a springboard to turn BigBear.ai around, but after such a large jump, investors should tread carefully before buying the shares at these highs.

John Ballard has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.