Everyone is ditching stock UiPath. Here’s why I’m not.

In the competitive world of business, even small increases in efficiency can propel a company to success over its rivals. Artificial intelligence (AI) and robotic process automation (RPA) can help create these increases, making them incredible tools for productivity.

A large home loan and finance company eg integrated RPA provided by UiPath (WAY -2.18%) into his workflow and said the changes saved him 10,000 hours of work annually. These robots perform functions using off-the-shelf software that was previously done by hand. Perhaps the best part is that these RPA services are almost 100% accurate and work 24 hours a day.

The profitability and growth implications for the client company are massive. More is done with fewer employees, more precisely, and robotic tools allow those employees to work on high-level, mission-critical tasks rather than repetitive, low-level tasks. Examples like this show why UiPath has potential as a company.

UiPath started strong, but like many tech stocks took a hit in 2022

This potential was evident when UiPath went public in early 2021 and started as a high-flying tech stock during the market boom that was happening at the time. However, as 2021 progressed, the threat of rising interest rates took its toll on many high-flying tech stocks, and Wall Street began to swoon over the business automation software developer. The stock is trading about 52% off its 52-week highs and about 82% off its all-time highs.

In this high interest rate economic environment, the company faces serious challenges, including increased competition, difficulty growing its customer base and changes in management. For investors considering UiPath stock today, its valuation is much more reasonable and has some positives to consider along with the challenges. Finding cheap return companies to invest in can be a great way to take advantage of long-term gains. Here’s why I think UiPath could be one of those comeback stories.

Why Did UiPath Stock Fall in 2024?

UiPath stock has been in a slow recovery mode for much of 2023 and into 2024. However, the stock took a significant dip after it released its most recent earnings report in late May. Management cut its full-year annual recurring revenue (ARR) guidance from $1.73 billion to $1.66 billion. A 4% target reduction may not seem significant, but any target reduction is significant for growing technology companies (companies tend to target easy targets so they can beat them). More worryingly, management cut its full-year revenue guidance by 10%, from $1.56 billion to $1.41 billion. With a dollar-based net retention rate of 118% (its existing customers spent 18% more than they had the previous year), the reduced revenue target indicates that it has been losing customers.

Another contributor to the stock’s decline was news that CEO Rob Enslin, who took over just four months ago, abruptly resigned. Although Enslin was only CEO for a short time (he had been co-CEO since 2022 with company founder Daniel Dines), the fact that he didn’t last long was a red flag for some investors. Dines is returning as CEO, which should help smooth things over while management considers next steps. Returning founders can sometimes rejuvenate a company with their passion and insider knowledge of the business. So this could turn out to be a positive development.

Positive cash flow, a solid balance sheet and a massive market

UiPath is clearly trying to meet some challenges. But there are also opportunities.

As mentioned above, the return of its founder could kick-start UiPath. The business didn’t thrive under Enslin, so new (old?) management provides an opportunity for change. Dines has a personal stake in the success of UiPath and has a lot to work with.

While UiPath’s revenue growth has slowed, it hasn’t completely stagnated. ARR was up 21% year-over-year, while sales were up 16%. UiPath’s cash flow is also positive, with an impressive 24% margin over the last four reported quarters.

PATH Revenue (TTM) data by YCharts.

Also, while there seems to have been some customer attrition, there are bright spots. The number of large customers delivering more than $100,000 and $1 million in annual sales increased again last quarter.

Source: UiPath.

Dines takes over a company that is in decent financial health. UiPath has nearly $2 billion in cash and investments on the books, no long-term debt and just $598 million in current liabilities, compared to $2.5 billion in current assets. That balance sheet will enable the company to fund growth, research and development and strategic acquisitions.

Statista predicts that the RPA market will grow at a compound annual rate of 37% through 2032, rising from $3.7 billion in 2022 to over $80 billion. Even capturing a modest portion of this market would be massive for a small company like UiPath.

Is UiPath stock a buy now?

The stock’s valuation of around 5.2 times sales reflects the immense challenges facing UiPath. The price-to-sales (P/S) ratio is less than two-thirds of its recent average and lower than its peers. For example, Gitlab and CommVault Systems trade at significantly higher values.

PATH PS Ratio data by YCharts.

These software companies do different things, but they are all growing technology companies with market caps between $6.5 billion and $7.5 billion and gross margins above 80%. Similarities make their assessments relevant.

UiPath’s success is far from guaranteed. However, it appears that the market is pricing in all the challenges and no opportunities for this company. While investing a large portion of your portfolio in UiPath would be unwise, the return opportunity makes it a speculative buy for long-term investors who don’t mind some risk.