UiPath Stock: Bullish Support Is Finally Here – Rebound Likely Prolonged (NYSE:PATH)

We previously covered UiPath (NYSE:THE WAY) in July 2024, discussing its inability to ride the first wave of generative AI monetization, as seen in the sudden management shakeup and drastically reduced FY2025 guidance.

Despite the near-term challenges, the decline in ARR growth and moderation Net retention rate based on dollars, the SaaS company had reported a growing customer base and a healthy balance sheet. Even so, we preferred to initiate a Hold rating then, attributed to the high short interest and higher selling inside LTM.

Since then, PATH has underperformed at -6.8% compared to the broader market at -0.7%. This is despite the double earnings call in FQ2’25, high guidance for FY2025 and rising profitability.

Even so, opportunistic investors might consider adding here, indeed, attributed to its cheap non-GAAP PEG ratio, the bullish support seen in its $10 share price, and the recently announced autopilot. partnership.

We will discuss further.

PATH’s investment thesis shows signs of promise, albeit with a slower-than-expected reversal

PATH YTD share price

PATH has indeed had a painful YTD performance as seen in the sharp pullback at the end of May 2024 as the market overreacted to the mixed FQ1’25 earnings call.

Sentiment remains mixed after the FQ2’25 earnings call and also raised guidance for FY2025, attributed to management’s laser focus on “returning to a better growth trajectory”.

While management highlighted its “priority going forward will be balancing these investments while expanding non-GAAP operating margin and delivering sustainable investments and delivering sustainable non-GAAP adjusted free cash flow,” FQ2’25 results remain really mixed.

For reference, PATH reported FQ2’25 revenue of $316.25 million (-5.6% QoT/ +10% YoY) and deterioration in adjusted operating margins of 7.7% (-7.2 points QoT/ -2 .7 YoY).

Much of the tailwinds are attributed to annualized recurring revenue (ARR) growth of $1.551B (+2.8% QoT/ +18.5% YoY) and net new ARR of $43M (-2.2% ToT/ -27.1% YoY), which implies management’s ability to generate new adoptions.

Robust enterprise demand was also seen in PATH customers growing to over $100K ARR of 2,163 (+3.3% ToT/ +12% YoY) and customers to over $1M ARR of 293 (+1.7% ToQ/ +20% YoY) ) in the last quarter.

This development nicely balances the dollar-based Net Retention Moderation Rate (DNR) of 115% (-3pts ToT/ -6 YoY), attributed to intensifying competition in the robotic process automation (RPA) and AI-based automation market from many old competitors. and startups.

Even so, with a remaining multi-year performance obligation rising to USD 1.08 billion by FQ2’25 (-1.8% ToT/ +20% YoY), we believe PATH’s near-term outlook remains safe.

In any case, management raised its FY2025 guidance to revenue of $1.4425 billion (+10.2% YoY), adjusted operating margins of 11.7% (-6.1 points YoY) and free cash flow to USD 325 M (+5.1% YoY).

This is up from the reduced figures of $1.4B (+7.6% YoY), 10.3% (-7.5pts YoY) and $300M (-2.9% YoY) respectively offered in the FQ1’25 earnings call, due to current restructuring/efficiency efforts.

Assuming PATH is able to reduce its growing expenses while operating at scale, we believe the SaaS company may be able to achieve its long-term adjusted operating margin target of 20% indeed.

This may be helped significantly by the company’s SaaS product releases in July, which included integrating Autopilot and LLM capabilities into the automation platform across the “entire testing lifecycle, from creating user stories to generating of test cases and reporting”, while reducing manual work by up to -50%.

With PATH already looking to launch Autopilot in Q3’24, we may see management provide relatively promising guidance for FQ4’25 in its next earnings call – thanks to new AI monetization opportunities.

Advance consensus estimates

Perhaps this is why forward consensus estimates look quite promising, with PATH expected to generate accelerated top/bottom line growth after the threshold and painful FY2025.

Most importantly, the SaaS company is expected to remain profitable on a free cash flow basis, allowing it to weather decelerating growth in the near term.

This is significantly helped by PATH’s still rich balance sheet at a net cash position of USD 1.74 billion (-9.3% QoT/ -4.3% YoY), with QoQ moderation attributed only to 218.75 M$ or the equivalent of 2.6% of its fleet. retired in H1’24.

This development “naturally underlines our confidence in the business, our conviction and long-term opportunities ahead, and our commitment to deliver shareholder value,” with a further $500 million expansion of its share buyback program in call time for FQ2’25 earnings.

PATH Assessments

Based on FWD non-GAAP P/E valuations of 30.28x and adj EPS expansion at a CAGR of +26% between S1’25 annualized adjusted EPS of $0.34 to consensus FY2027 adjusted EPS of $0.54 , we think PATH’s FWD Non-GAAP PEG ratio of 1.16x remains reasonable here.

This happens especially when ccompared to its automation/AI SaaS peers such as Microsoft ( MSFT ) at a non-GAAP FWD PEG ratio of 2.31x, SAP SE ( SAP ) at 3.02x, and Salesforce, Inc. (CRM) at 1.36x, which implies an excellent margin of safety for those looking to add PATH.

So, is PATH Stock a buysell or keep?

PATH 2Y Share Price

For now, it’s clear that the bulls continue to defend their $10 lows during the recent market rotation since early August 2024, with PATH currently retesting the $12 intermediate support levels at the time of writing.

Based on moderate FWD non-GAAP P/E valuations of 30.28x (down from 37.61x) and FY2025 adjusted EPS estimates of $0.54 (down from $0.56), we look at an (even lower) long-term price target upgrade from $21 to $16.30 – implying a decent upside potential of +35.4% from current levels.

Even so, while we cautiously upgrade PATH stock to a Buy, readers may want to note a few caveats to its investment thesis.

Risk warning

First, PATH’s short interest has risen to 7.4% as of this writing, up from 5.9% as of early 2024, implying additional near-term volatility as the CBOE Volatility Index remains high.

Second, with headcount reductions only expected to be completed by FQ1’26 (April 2025), readers may want to temper their near-term expectations on its margin expansion as well, and FY2025 will it probably remains a lean and painful year.

Ultimately, we think the PATH reversal is likely to be prolonged, attributed to the slower (but steady) monetization of AI.

While Autopilot could generate new growth opportunities, we believe the impact on performance in the second half of 2025 is likely to be subdued, with any significant contribution likely only until fiscal 2026, with readers advised to monitor management’s guidance in the next earnings call.

Therefore, it goes without saying that PATH is only suitable for investors with a longer investment trajectory, as the stock is likely to trade sideways in the short term.