Master your fundamental research. Join 78,618 investors who trust our platform and content.
Save 54+ hours of fundamental research with free access to Stock Card.
We only ask your name and email address.
The year is 2033. Rows and rows of people are ushered through narrow captivity corridors by the robot overlords. The sharp smell of fire and ash is making people gasp for air. The humanoid robots are scaring, capturing, and hunting people. AI finally took over.
What's that? It's 2023, not 2033? AI hasn't dominated the world yet! Okay, phew!
So if AI hasn't yet dominated the world, what can it do?
Well, according to UiPath's business description, AI can help organizations scale digital business operations rapidly. Oh, that sounds like a good idea! It can save businesses a lot of money.
But is the stock fundamentally strong and worth investing in so we can make much money too before AI takes over the world? It may very well be. More importantly, is it priced cheaper than AI stocks such as Nvidia, giving us room to grow without taking the high valuation risk?
Today, we will discuss all that and research UiPath (PATH) fundamentally to decide whether it is worth investing in and holding for the long term before AI takes over the world.
Let's talk about that!
I'm Hoda Mehr, founder, and CEO of Stock Card, and on this blog and its accompanying YouTube channel and Podcast show, I share detailed fundamental analyses and interesting investment stories.
This post is part of a series I started a few weeks ago to fundamentally research companies to manage my real-money portfolio. I've already researched Canopy Growth (CGC), Fastly (FSLY), Snap (SNAP) , Shopify (SHOP), Airbnb (ABNB), Unity (U), and JD.com (JD), and several others. I'll continue with this series for a few more weeks.
Remember, this content is for education and sharing ideas and not advice to buy or sell any securities.
Sign up for a free account on Stock Card to get notified of these blog posts, YouTube videos, and Podcast shows every week.
We only ask you name and email address when you sign up.
Artificial Intelligence is the talk of the town. Just recently, we saw Nvidia's stock jumped more than 25% in one day after announcing a surprising revenue forecast thanks to heightened demand for data centers that can handle generative ai applications. I posted a detailed review of Nvidia a few days back, and I'll share a link to it in the show notes. The gist of it was that Nvidia is great but too expensive. Which means if we are not investing in NVDA, then what do we invest in that benefits from the same trends and has solid operations while it is not priced as the next best thing after the sliced bread?
UiPath could fit that description, at least, that's what Cathie Wood and the ARK Invest team of innovation-obsessed investors believe in.
Let's dig into UiPath's top and bottom lines, revenue and profit trends and direction, balance sheet strength, and free cash flow status, and decide whether it is worth paying the 8-time price-to-sales ratio for the stock.
UiPath's Fundamental Analysis
UiPath makes money by selling other companies the licenses to use its automation software or paying a subscription fee to access UiPath's platform on the cloud. It grew its revenue by 42% annually, compounded to $1.3B in annual recurring revenue in the first quarter of this year. Growth in recent years has slowed down slightly to 28% year over year and 17% for a quarter-over-quarter. But still, the company is growing.
While UiPath's operations weren't profitable in the latest quarter, the company has been profitable in the past, and by adjusting the numbers for non-cash expenses such as stock-based compensation, the operations are still profitable in the latest quarter.
Similarly, it used to generate free cash flow in the past, and in the latest quarter, it is free cash flow positive on a non-GAAP basis. Most of the adjustment is attributed to the cash used in the purchases of marketable securities. Ideally, you'd want a company that generates free cash flow consistently and doesn't need adjustments to show positive figures, but still, it's good to see non-GAAP free cash flow.
The good news is that UiPath holds nearly $2B in cash and cash equivalents with no significant debt, giving it a resilient balance sheet. We can be comfortable knowing that it has enough cash to reinvest in its future even if it doesn't generate free cash flow for a quarter or so.
UiPath's Fundamental Recap
Let's recap UiPath's fundamental analysis:
To grow sales eight times in 10 years, which is the stock's current price-to-sales ratio, UiPath needs to grow its revenue by 23% annually. The good news is that the required growth rate is lower than UiPath's compounded annual growth in the last few years, even though its latest quarterly growth rate isn't as high.
It is certainly cheaper and more reasonably priced than Nvidia while still benefiting from the AI boom. It isn't exactly the generative AI infrastructure developer that Nvidia is, but certainly, it has a rapidly growing market. Most importantly, it allows companies to adopt the generative AI application within their organizations which can boost its revenue in the coming quarters.
However, there are still valuation risks associated with the stock. If by any chance the revenue growth slows down and the company doesn't make up for it with higher profitability, then we will be in serious problem. It isn't a slam dunk stock, but nothing is. Remember, the company is a recent IPO but was founded in 2005, almost 18 years ago, so by now, it should have found it's selling rhythm.
Is UiPath A Buy Now?
At nearly $10B in market cap, it is just at the threshold of small companies I like to invest. I already indirectly invested in this stock because of ARKK's 6% allocation to this company. If you don't have an ETF like ARKK that bets big on UiPath, this can be a stock to buy now and monitor and add more as it continues to prove it can grow its revenue rapidly and expand its profits.
If UiPath isn't up to your liking, but you still want to research AI stocks, type artificial intelligence in the search bar and get the list of AI stocks and ETFs on Stock Card.
I'll see you next time!