UiPath Inc Operates in a Potential $35-Billion Market
Technology stocks have mounted a stellar rally since their June low, but even so, many of the stocks are trading well below their highs. Yes, the surge by technology stocks in 2021 was excessive, but for contrarian investors, the subsequent selling was also excessive.
That’s the situation with UiPath Inc (NYSE:PATH), a provider of enterprise software used in the robotic process automation (RPA) industry.
RPA uses software to reduce redundancy and repetitive tasks, thereby lowering costs. Grandview Research, Inc. estimates that the global RPA market was $1.9 billion in 2021 and could increase at a compound annual growth rate (CAGR) of 38.2% to roughly $34.8 billion by 2030. (Source: “Robotic Process Automation Market,” Grandview Research, Inc., last accessed August 18, 2022.)
Similar to other enterprise software stocks, PATH stock has struggled over the past year.
After an exciting initial public offering (IPO) with a debut price of $56.00 in April 2021, UiPath stock took off, surging to $90.00 in May of that year. PATH stock, however, is currently trading down by 79% and drifting around the $20.00 level.
While UiPath stock’s initial spike to $90.00 was unwarranted, my view is that its current risk/reward ratio is compelling for contrarian investors.
UiPath Inc’s Revenues Keep Rising
With a market valuation above $10.0 billion, UiPath Inc isn’t small.
Moreover, the company has been delivering some strong financial growth. Its revenues jumped by 593% from $148.5 million in 2019 to $892.3 million in 2022 (with a fiscal year ending January 31).
The following table shows UiPath Inc’s impressive revenue growth from fiscal 2020 through fiscal 2022, with a CAGR of 82% during this time frame.
|Fiscal Year||Revenues (Millions)||Growth|
(Source: “UiPath Inc.” MarketWatch, last accessed August 24, 2022.)
UiPath Inc’s revenue growth is expected to normalize but still continue in the double-digit percentages. Analysts estimate that the company’s revenues will rise by 22.1% to $1.1 billion in fiscal 2023 and by 27.7% to $1.4 billion in fiscal 2024. (Source: “UiPath Inc. (PATH),” Yahoo! Finance, last accessed August 24, 2022.)
Furthermore, UiPath Inc has a solid balance sheet, with minimal debt of $47.7 million and cash of $1.8 billion as of the end of April. The strong cash position will allow time for the company to execute its business growth strategy.
Compelling Risk/Reward Trade-Off With PATH Stock
Given that UiPath stock is down by 79% from its record high, there’s potential for significant price appreciation.
Shares of UiPath Inc have been caught in a horrendous downtrend channel since trading at their high. PATH stock has failed to garner any buying support, breaking below channel support in April on a bearish downside trade gap. UiPath stock then fell to $13.66 in May.
While shares of UiPath Inc have bounced by 43% since their low, they’ve been hovering around their 50-day moving average of $19.71 and below their 200-day moving average of $29.76, which is roughly at the channel resistance level.
Chart courtesy of StockCharts.com
If PATH stock can attract additional buying, we could see a breakout toward congestion around $40.00, representing a doubling in the share price.
UiPath Inc has decent institutional ownership, with 417 institutions holding a 58.4% interest in UiPath stock. ARK Investment Management LLC is the biggest investor, with 37.6 million shares, or 8.1% of the company. (Source: Yahoo! Finance, op. cit.)
There has also been strong insider buying of PATH stock, which is always a positive sign. Over the last six months, insiders have added a net 5.6 million common shares of UiPath Inc.
My view is that a sustained move to the risk on trade could drive UiPath stock much higher.