Down 45% on the year, is this a golden opportunity to buy UiPath stock after it issues upbeat guidance?

After seeing its stock drop following its first-quarter earnings report, UiPath (WAY -1.31%) did better when it reported its second quarter results. And yet, the stock still traded lower.

With the stock still down about 45% this year, let’s take a closer look at the second quarter results for this artificial intelligence (AI) robotic process automation software company and see if it’s now a good time to buy stocks.

Getting back on track

UiPath’s Q1 report was a complete disaster, with the company significantly lowering its full-year outlook and announcing the resignation of its CEO. However, things appear to be back on track, with the company reporting better-than-expected results in the second quarter and raising its full-year guidance this time.

UiPath saw its second-quarter revenue rise 10% year-over-year to $316 million, which beat the $300 million to $305 million it had previously forecast.

Its annualized renewal rate (ARR) grew 19% year-over-year to $1.55 billion. ARR is an important metric for predicting future revenue growth, according to the company. It is defined as the annual amounts billed from subscription licenses, as well as maintenance and support obligations, although it does not include perpetual licenses or professional services.

Dollar-based net retention was 115% on a trailing 12-month basis, down from 118% last quarter. Figures over 100% show growth among existing customers after accounting for any churn. The company highlighted a number of new large expansion agreements with customers on its conference call.

Image source: Getty Images.

Expansion into its existing customer base has been a strength of UiPath, although it has struggled to add net new customers. The company ended the quarter with a total of 10,810 customers, which was a modest increase of 10 net new customers for the quarter. Gross retention was 97%. However, it continued to grow its large customer base either through upselling or new additions.

UiPath added 71 customers with $100,000 or more in ARR in the quarter, bringing the total to 2,163. That was a 12 percent increase from the 1,930 it had a year ago. The number of customers with $1 million or more in ARR increased five quarters quarter-over-quarter to 293 and was up 15% from 254 a year earlier.

Turning to its balance sheet, UiPath ended the quarter with $1.7 billion in cash and marketable securities. It repurchased 16.3 million shares this quarter and also announced a new $500 million share buyback plan.

Looking ahead to the third quarter, the company estimated revenue in the range of $345 million to $350 million, with the midpoint just ahead of the analyst consensus of $347.3 million. It indicated ARR to be between $1.600 billion and $1.605 billion.

For its full fiscal year, UiPath expects revenue to be between $1.420 billion and $1.425 billion, up from a previous forecast of $1.405 billion to $1.410 billion. However, that was still well below its initial revenue guidance of $1.555 billion to $1.560 billion. It is looking for ARR between $1.665 billion and $1.670 billion at the end of the fiscal year, up from previous estimates of $1.660 billion and $1.665 billion.

Is it time to buy this runaway stock?

UiPath is one of the cheapest software stocks out there, trading at a forward price-to-sales ratio of 4.6 based on analyst estimates next year. However, when it takes out its $1.7 billion in cash, it trades at a forward enterprise value-to-sales ratio of just 3.4.

PATH PS Ratio data (before 1y) by YCharts.

While growth has slowed, part of that is due to accounting rules related to revenue recognition, which is why its ARR is growing at a much faster rate than revenue. But for a company growing double-digit revenue and ARR of nearly 20% with gross margins of 80%, UiPath stock is in the bargain bin.

There are some concerns that AI is more of a threat than an opportunity. However, the company’s strong net dollar retention demonstrates how much customers value its solutions. At the same time, UiPath has added a number of new AI innovations to its products.

Its main goal is to combine robotic automation with “agent automation” so that its users can navigate between robots, agents, and humans. He sees this as a big differentiator. Agentic automation uses AI agents to make decisions without predefined rules and does not need a human to supervise it.

Given UiPath’s valuation — along with some solid fundamentals like net dollar retention, gross margins and ARR growth — I’d be a buyer of the stock based on the current weakness it’s experiencing.