UiPath: A Work in Progress (NYSE:PATH)

Summary

In May, we reviewed UiPath Inc. (NYSE:THE WAY) and concluded that while company growth has slowed as clients reorganize their IT strategy and budgets to incorporate AI, RPA (robotic process automation) could see an acceleration in demand and is a tool. which the AI ​​can use. The company’s founder returned as CEO and began making commercial changes with a focus on accelerating new contracts. However, this could take some time to execute and the stock would tread water until a clearer path forms.

Quarterly result

Fiscal 2Q25 results were consistent with revenue growth of 10%, but with a decline in operating margins and flat cash flow. The company said in its analyst call that it is starting to see the “confusion” around AI and RPA start to dissipate, but they are not ready to make longer-term guidance. This suggests to me that the “problem” is still a work in progress and PATH will need to educate/demonstrate to its current and future customers that its products are essential for AI to achieve the intended productivity levels.

In my May article, I saw that the consensus had yet to adjust for the company’s results and headwinds, with revenue growth still around 19%, while the $27 price target looked bullish. Current guidance and consensus for fiscal 2025 have largely merged into an 8% revenue growth rate, with margins shrinking and EBITDA up 25% YoY. The current price target has moved to $15, which seems reasonable as the company is finally moving past the crisis.

Rating reset

The stock has undergone a valuation reset or downgrade, and where it was once valued at around 45 times cash earnings (compensation and depreciation based on additional shares), the market has now reduced this to 25 times with an implied PEG ratio of 1.5x, in line with the NASDAQ 100 Index (NDX). Using the 25x target from calendar 2026 estimates, they arrive at a potential upside of 63%, or $20 if the company can increase top growth to 15%.

Estimates now appear to incorporate a slow-growth business model that accounts for competition and most likely lingering “confusion” around the integration of PATH automation with AI. On the plus side, the company generates more than $300 million in free cash flow that can be used in M&A or buybacks.

Risk

The long-term risk is if AL can replace RPA, making the company obsolete. In the medium term, competition from other IT service providers is likely to start building their own RPA with the help of AI. New technology can disrupt all companies, no one is 100% safe in my opinion.

Conclusion

I rate PATH as a holdover. Quarterly results are positive, management is committed to restarting growth, and the stock and estimates have largely factored in a slower growth scenario with upside risk if management can execute better than expected.