Analyst price targets can help investors uncover stocks that have a lot of potential upside. In some cases, however, that perceived upside may only appear high because the stock has fallen heavily in value. And if it has fallen due to adverse results or a more troubling outlook for its future, downgrades could be inevitable, which may reduce those price targets.
That's why it's always important for investors to do their own analysis when making an investment decision. One stock that today appears to have a lot of upside based on analyst price targets is UiPath (NYSE: PATH), with an implied upside of around 42%. But with the stock struggling this year, is it really a good buy right now, or could analysts simply be overdue in trimming their price targets for UiPath?
Why has UiPath been a bad buy in 2024?
UiPath provides companies with robotic process automation software, which can help businesses expedite their day-to-day processes and improve overall efficiency. At a time when products and services related to artificial intelligence (AI) are in high demand, it may be surprising to see that shares of UiPath are down around 50% this year.
A big problem is that there are many similar services out there that businesses can utilize to automate everyday tasks. And while UiPath is growing, its growth rate hasn't been accelerating.
PATH Revenue (Quarterly YoY Growth) data by YCharts
While there was a slight uptick in 2023, the overall trajectory is downward.
Another concern is that amid growing its operations, UiPath's losses have been increasing. Over the past two quarters, the company has incurred a net loss of $114.8 million -- 24% higher than the $92.3 million loss it incurred over the same period last year. This doesn't give investors a lot of hope that it's on a path to profitability.
Why more downgrades could be coming
Many of the more bullish analysts, which had priced the stock at more than $20, trimmed their price targets back in May to below the $20 mark. Many of the more recent price targets for UiPath are now within the $14 to $16 range. However, there are some still far higher than that and that could be overdue for downgrades.
Given UiPath's lack of profitability and its slowing growth rate, it seems probable that analysts could continue to scale back their expectations for the stock. Should UiPath's growth rate fall below 10% next quarter, that could lead to a flurry of downgrades.
Plus, with a possible recession coming in the not-too-distant future, a more troubling outlook for the economy could result in businesses spending less on automation software, which could also make analysts more bearish on UiPath's business. While it still may have long-term potential, with analysts focusing their price targets on where a stock might go in the next 12 months or so, a more worrisome economic picture could weigh on their outlook for its share price.
Should you invest in UiPath?
UiPath is a stock that should be doing well this year but isn't, and that's a big red flag. If demand for the company's products and services isn't taking off when conditions are ideal (i.e., hype around AI is strong), it leads me to question just how useful businesses are finding the software to be, especially amid a growing number of AI-related options to choose from.
And that's ultimately why I'd avoid the AI stock for now as there's little reason at this point to be optimistic that it can turn things around. Without a better growth rate or at least a stronger bottom line, shares of UiPath could continue to decline.
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David Jagielski has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends UiPath. The Motley Fool has a disclosure policy.