Shares of the enterprise automation software vendor UiPath (PATH) are on a downtrend. Its stock has lost more than 25% of its value since going public in April.
This decline reflects the moderation in UiPath’s ARR (Annualized Renewal Run-Rate) and, more specifically, license revenue growth rate. Its license revenue growth rate moderated to 20% in Q2 from 57% in Q1.
However, management continues to stress that ARR remains the key metric to gauge the company’s performance, rather than license revenue. Agreeing with management’s views, Scott Berg of Needham stated that “SaaS (software as a service) company value is truly derived from its ARR but note PATH shares likely continue to have some volatility around the quarters due to this fluctuation in license revenue recognition.”
Berg added, “We note investor appreciation could require some time due to most SaaS companies not reporting ARR quarterly, leaving revenue, RPO, and billings as the most appropriate metrics.”
He maintains a Buy rating on UiPath stock with a price target of $85, representing 65.6% upside potential. Berg sees strong demand trends within the RPA (Robotic process automation) space.
Furthermore, the 5-star analyst expects customers’ increased use of UiPath’s platform for their various functions, including sales and marketing, will drive its TAM (total addressable market) over time. Also, Berg remains optimistic about UiPath’s new cloud platform and expects it to support ARR.
While UiPath’s growth has moderated a bit, its customer metrics remain strong. The company continues to acquire new customers (added over 600 customers in Q2).
Furthermore, its customers with over $1 million in ARR have doubled on a year-over-year basis. Equally solid is its dollar-based net retention rate, which stood at 144% at the end of Q2. I maintain a Bullish outlook on UiPath stock.
Overall, Wall Street is cautiously optimistic on PATH stock, and its analyst rating consensus of Moderate Buy is based on 6 Buys, 9 Holds, and 1 Sell.
However, TipRanks’ Stock Investors tool indicates that investors who hold portfolios on TipRanks currently have a Very Positive outlook on UiPath stock, with 37.2% of these investors increasing their exposure in the last month.
Furthermore, PATH scores an 8 out of 10 from TipRanks’ Smart Score rating system, indicating that the stock has strong potential to outperform market expectations.
Meanwhile, the average UiPath price target of $72.93 implies 42.1% upside potential to current levels.
Disclosure: On the date of publication, Amit Singh had no position in any of the companies discussed in this article.
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