In a year when virtually every company associated with artificial intelligence (AI) has seen its stock rise, UiPath (NYSE: PATH) did the opposite. 2024 has been a disaster for investors so far, with stocks down 49%.
While most of this drop occurred after the May 29 financial results were released, the stock had already been in steady decline prior to that release. However, the selloff is vastly overblown and the stock represents an attractive value at this time.
UiPath Integrates AI into its Core Offerings
UiPath offers its customers Robotic Process Automation (RPA) software. In other words, it helps users automate repetitive tasks, thereby improving employee productivity and morale.
Strictly speaking, UiPath isn’t an AI company, but it has several AI applications that enhance the capabilities of its product. And it has add-ons that can extract data from digital communications and understand legal documents, in addition to a generative AI functionality who can create responses to product requests.
The use of RPA software is expected to grow significantly in the coming years. According to Grand View Research, the global RPA market is expected to grow from approximately $3 billion in 2023 to nearly $31 billion by 2030. This is a substantial increase, and UiPath is well positioned to claim its share of the market.
However, UiPath’s long-term outlook doesn’t seem to matter much after it released its Q1 FY2025 earnings report.
UiPath’s first quarter earnings report was a disaster
For UiPath, annualized renewal rate (ARR) is a key metric that investors watch. While revenue is always a useful number, it is distorted by the quarter-to-quarter fluctuations that occur when a customer launches a new product, as UiPath provides the technical support needed to get it up and running. Instead, ARR represents the annualized value of customers’ bills that subscribe.
In March, management had forecast first-quarter ARR of $1.508 billion to $1.513 billion. Actual results came in at the low end of that range, with ARR of $1.508 billion. While that was disappointing, what’s even more concerning is management’s decision to cut its full-year guidance. UiPath cut its previous ARR guidance of $1.725 billion to $1.730 billion to a range of $1.660 billion to $1.665 billion.
This implies full-year adjusted operating income growth of 14% instead of 18%. In addition, management reduced its full-year adjusted operating income projection from $295 million to just $145 million.
Along with these downward revisions to guidance, UiPath has made a major leadership change. CEO Rob Enslin has stepped down after just four months in the role. Before that, he was co-CEO with founder Daniel Dines for nearly two years. Dines is replacing him, but the market has been roiled by uncertainty within the leadership team.
The combination of these updates caused UiPath’s stock to fall 34% the day after the results were announced.
But have investors gone too far? I think so.
While there are good reasons to be concerned about the CEO shakeup and the latest guidance, I think the company is being extremely conservative. On the earnings call, management said it saw a lot of variability in first-quarter trading and wanted to be conservative with its outlook. That could set the stage for a higher fiscal second-quarter result.
Meanwhile, the stock is trading near its all-time low valuation. Investors are forgetting that this is still a fast-growing company and that the RPA market is expected to grow rapidly over the next decade.
With that in mind, this stock is too cheap to ignore and investors should consider buying it. actions before the start of the rebound.
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Keithen Drury has positions in UiPath. The Motley Fool has positions in and recommends UiPath. The Motley Fool has a disclosure policy.
UiPath stock is down 49% this year. Here’s why it’s time to double down. was originally published by The Motley Fool
