UiPath has followed the market’s trajectory closely, rising in tandem with the S&P 500 over the past six months. The stock has climbed by 12.9% to $12.19 per share while the index has gained 16.8%.
Is there a buying opportunity in UiPath, or does it present a risk to your portfolio? Dive into our full research report to see our analyst team’s opinion, it’s free.
Why Is UiPath Not Exciting?
We're sitting this one out for now. Here are three reasons why PATH doesn't excite us and a stock we'd rather own.
1. Billings Hit a Plateau
Billings is a non-GAAP metric that is often called “cash revenue” because it shows how much money the company has collected from customers in a certain period. This is different from revenue, which must be recognized in pieces over the length of a contract.
Over the last year, UiPath failed to grow its billings, which came in at $301 million in the latest quarter. This performance was underwhelming and shows the company faced challenges in acquiring and retaining customers. It also suggests there may be increasing competition or market saturation. 
2. Projected Revenue Growth Is Slim
Forecasted revenues by Wall Street analysts signal a company’s potential. Predictions may not always be accurate, but accelerating growth typically boosts valuation multiples and stock prices while slowing growth does the opposite.
Over the next 12 months, sell-side analysts expect UiPath’s revenue to rise by 9.6%, a deceleration versus its 27.1% annualized growth for the past five years. This projection doesn't excite us and implies its products and services will see some demand headwinds.
3. Operating Losses Sound the Alarms
While many software businesses point investors to their adjusted profits, which exclude stock-based compensation (SBC), we prefer GAAP operating margin because SBC is a legitimate expense used to attract and retain talent. This metric shows how much revenue remains after accounting for all core expenses – everything from the cost of goods sold to sales and R&D.
UiPath’s expensive cost structure has contributed to an average operating margin of negative 3.1% over the last year. Unprofitable, high-growth software companies require extra attention because they spend heaps of money to capture market share. As seen in its fast historical revenue growth, this strategy seems to have worked so far, but it’s unclear what would happen if UiPath reeled back its investments. Wall Street seems to think it will face some obstacles, and we tend to agree.
Final Judgment
UiPath isn’t a terrible business, but it isn’t one of our picks. That said, the stock currently trades at 4× forward price-to-sales (or $12.19 per share). While this valuation is reasonable, we don’t really see a big opportunity at the moment. We're pretty confident there are superior stocks to buy right now. We’d recommend looking at a fast-growing restaurant franchise with an A+ ranch dressing sauce.
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