BigBear.ai Holdings, Inc. (NYSE:BBAI) shareholders would be excited to see that the share price has had a great month, posting a 76% gain and recovering from prior weakness. This latest share price bounce rounds out a remarkable 406% gain over the last twelve months.

Since its price has surged higher, you could be forgiven for thinking BigBear.ai Holdings is a stock to steer clear of with a price-to-sales ratios (or "P/S") of 21.7x, considering almost half the companies in the United States' IT industry have P/S ratios below 2.5x. However, the P/S might be quite high for a reason and it requires further investigation to determine if it's justified.

How BigBear.ai Holdings Has Been Performing

With revenue growth that's inferior to most other companies of late, BigBear.ai Holdings has been relatively sluggish. Perhaps the market is expecting future revenue performance to undergo a reversal of fortunes, which has elevated the P/S ratio. If not, then existing shareholders may be very nervous about the viability of the share price.

If you'd like to see what analysts are forecasting going forward, you should check out our free report on BigBear.ai Holdings.

How Is BigBear.ai Holdings' Revenue Growth Trending?

BigBear.ai Holdings' P/S ratio would be typical for a company that's expected to deliver very strong growth, and importantly, perform much better than the industry.

Taking a look back first, we see that the company managed to grow revenues by a handy 3.5% last year. Although, the latest three year period in total hasn't been as good as it didn't manage to provide any growth at all. So it appears to us that the company has had a mixed result in terms of growing revenue over that time.

Turning to the outlook, the next year should bring diminished returns, with revenue decreasing 6.5% as estimated by the three analysts watching the company. That's not great when the rest of the industry is expected to grow by 24%.

In light of this, it's alarming that BigBear.ai Holdings' P/S sits above the majority of other companies. Apparently many investors in the company reject the analyst cohort's pessimism and aren't willing to let go of their stock at any price. There's a very good chance these shareholders are setting themselves up for future disappointment if the P/S falls to levels more in line with the negative growth outlook.

The Bottom Line On BigBear.ai Holdings' P/S

BigBear.ai Holdings' P/S has grown nicely over the last month thanks to a handy boost in the share price. Typically, we'd caution against reading too much into price-to-sales ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

We've established that BigBear.ai Holdings currently trades on a much higher than expected P/S for a company whose revenues are forecast to decline. Right now we aren't comfortable with the high P/S as the predicted future revenue decline likely to impact the positive sentiment that's propping up the P/S. This places shareholders' investments at significant risk and potential investors in danger of paying an excessive premium.

It's always necessary to consider the ever-present spectre of investment risk. We've identified 3 warning signs with BigBear.ai Holdings (at least 1 which makes us a bit uncomfortable), and understanding these should be part of your investment process.

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.