Investors who choose to buy UiPath(NYSE: PATH) stock today must be comfortable with a hefty degree of uncertainty, considering there are important, unanswered questions around the business right now.
The uncertainty for UiPath starts at the top. Founder Daniel Dines had briefly relinquished his position as CEO to Rob Enslin. But after just four months of leading the company on his own, Enslin abruptly resigned, leaving Dines to take over again. The first CEO transition appeared meticulously planned, but this latest leadership change was abrupt, a red flag for investors.
However, there is another key question UiPath must address beyond its long-term CEO plans. Investors are also wondering whether generative artificial intelligence (AI) is a tailwind or a headwind for the business. The company's management says it's a tailwind, as one might expect. But management admits its customers are confused, and that's a troubling admission.
UiPath's software automates menial digital tasks, freeing people up for more meaningful jobs. This sounds an awful lot like one of the benefits of generative AI, which explains customers' confusion. They don't know whether they should pay for UiPath's services or experiment with generative AI tools.
The company will report financial results for its fiscal 2025 second quarter (ended July 31) on Sept. 5. However, management lowered full-year expectations when it reported its first-quarter results in May. Previously, it had expected annual recurring revenue (ARR) of $1.725 billion to $1.730 billion for fiscal 2025. As of the first quarter report, UiPath expects just $1.660 billion to $1.665 billion in ARR, likely a result of customers weighing the value of the company's services against competing AI products.
With so much uncertainty, is there still a case to buy UiPath stock today?
What UiPath has going for it
Robotic process automation software is something industry followers believe will grow substantially in coming years. Spending in this space could expand at a nearly 37% compound annual growth rate (CAGR) from 2022 through 2032, according to Statista. Even a fraction of this forecast would be head-turning. Fortunately for UiPath, it's considered a leader in this high-growth space.
Last month, Gartner named UiPath a leader in robotic process automation software for a sixth straight year, placing it ahead of all 12 of its peers considered for the report. Likewise, Everest Group placed UiPath in the leadership category for its report.
At the same time, UiPath is in a strong financial position to capitalize on its opportunity with $1.9 billion in cash and marketable securities as of late May. Moreover, it's debt-free, so it has the resources to invest in this space, and its financial condition is improving with time since it generates positive free cash flow.
Data by YCharts.
Despite the recent uncertainty, UiPath could be better positioned than its industry peers, and that may be enough reason for some investors to take a chance on the stock.
What could go wrong for investors?
This article began by bringing up unanswered questions for UiPath around its leadership and competitive positioning relative to AI. Enslin was originally brought in to lead the company because Dines recognized Enslin's experience in scaling software businesses. With Enslin now gone, does Dines have the skillset needed to take UiPath to the next level?
Moreover, UiPath did meaningfully reduce its financial guidance for the year. Are customers suddenly pulling back as generative AI offerings take off? Or is UiPath's software simply not as useful as some of its customers had hoped?
Unless an investor has special insight into the needs of today's enterprises and how UiPath's software uniquely meets those needs, it may be hard to invest with a high degree of confidence here.
However, there is one last thing working in the stock's favor: its valuation. UiPath trades at just 22 times free cash flow, as of this writing, which is a fairly pedestrian valuation for a growing software company.
While UiPath may not be a no-brainer buy, it's still one of the better options when it comes to making a cautiously optimistic investment in a high-growth industry.
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Jon Quast has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends UiPath. The Motley Fool recommends Gartner. The Motley Fool has a disclosure policy.
