I am neutral on UiPath (PATH) because the company’s significant growth momentum and lengthy growth runway are offset by its current lack of profitability and need to continue growing rapidly for years.
UiPath is an American multinational software company that provides end-to-end robotic automation for user activities, such as repetitive front- and back-office tasks and those performed by other business software like customer relationship management and enterprise resource planning software. (See Analysts’ Top Stocks on TipRanks)
Strengths
UiPath became public on April 21, and the company’s fiscal revenue of the second quarter exceeded analysts’ expectations. The company was named a process mining leader in the technology industry for the second straight second year and is one of the four-Star Performers in 2021’s assessment, showing year-over-year growth.
UiPath also partnered with SUSE, a Linux and Kubernetes management leader, as well as invested in a joint venture with Alteryx that allowed users to easily use UiPath software robots.
With a wide range of technology solutions, UiPath has added over 300 new go-to-market partners in the second quarter of 2022, bringing its total partner ecosystem to over 4,700. The company also announced that its community has grown to over 1.5 million members and has launched three more features, including the UiPath community job board, use case repository, and community mentorship program.
Recent Results
UiPath reported that its annualized recurring revenue (ARR) grew by 60% year-over-year in its most recent quarter to $726.5 million. The improved results are attributed to the addition of new customers, as well as a healthy expansion with existing customers. The company also reported net new ARR of $73.9 million, showing an increase of 33% year-over-year.
The company’s $195.5 million revenue showed an improvement of 40% from the same quarter of the previous year. Additionally, the GAAP gross margin was 82% while the non-GAAP gross margin was 86%. The company also revealed a strong cash flow statement with cash, cash equivalents, and marketable securities amounting to $1.9 billion at the end of the second quarter of 2022.
For the coming quarter, the company is focusing on driving growth while exercising operational excellence. UiPath has given its guidance for the third quarter of 2022 with ARR in the range of $796 million and $798 million, and revenue in the range of $207 and $209 million. For the full 2022 fiscal year, UiPath expects an ARR in the range of $876 million to $881 million.
Valuation Metrics
UiPath’s stock is challenging to value at the moment given that it is running up steep losses.
At the same time, it is trading at 26.6x forward sales and analysts expect revenue to grow by 43% in 2022 and 33.4% in 2023, while also generating positive EBITDA both years.
If the company can sustain a growth rate in that range for several years to come and scale into greater profitability, it could generate satisfactory returns over time.
Wall Street’s Take
From Wall Street analysts, UiPath earns a Moderate Buy analyst consensus based on six Buy ratings, nine Hold ratings, and one Sell rating in the past three months. The average UiPath price target of $71.36 puts the upside potential at 29.7%.
Summary and Conclusions
UiPath is an exciting company working on the cutting edge of workplace automation. The company’s technological advances have the potential to save countless hours of human labor. As a result, the company enjoys a significant growth runway, and is currently riding a wave of rapid growth.
That said, despite Wall Street bullishness on the stock, its lack of profitability makes it a rather speculative bet, so investors – should they choose to add shares here – would be prudent to keep the risks in mind.
Disclosure: At the time of publication, Samuel Smith did not have a position in any of the securities mentioned in this article.
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