Forbes contributors publish independent expert analyses and insights.
UiPath (NYSE:PATH), an international software firm focused on robotic process automation (RPA), experienced a nearly 8% increase in its stock during after-hours trading on Friday and is currently up about 10% over the last five trading days. This uptick follows a series of collaborations with AI giants including Nvidia and OpenAI, which may indicate a revitalized growth story for the company. Year-to-date, UiPath's stock has slightly lagged behind, as investors have been concerned about the emergence of AI and its integration with the company's platform, alongside ongoing profitability challenges. So, do the recent agreements make the stock worth buying?
Historically, UiPath has prioritized automating routine digital activities, such as updating customer relationship management (CRM) systems or overseeing enterprise resource planning (ERP) workflows. In the Gen AI age, the company aims to pivot towards agentic automation, where AI agents perform complicated, knowledge-intensive tasks autonomously with minimal human oversight. RPA focuses on rule-driven, repetitive activities -- like transferring data between systems, modifying spreadsheets, or processing invoices. Conversely, agentic automation employs AI-powered "agents" to manage intricate, end-to-end operations that necessitate decision-making, contextual comprehension, or issues resolution.
As always, putting money into the stock of a single company carries inherent risks. Examine the Trefis Reinforced Value (RV) Portfolio, which has outperformed its all-cap benchmark (a combination of the S&P 500, S&P MidCap, and Russell 2000) to deliver impressive returns for investors. The quarterly rebalanced composition of large-, mid-, and small-cap RV Portfolio stocks offers a flexible strategy to benefit from bullish markets while minimizing losses, as illustrated in RV Portfolio performance metrics.
The recent agreements the company has established align with this objective. A crucial aspect of UiPath's strategy is providing vendor flexibility: its platform is capable of integrating with several AI suppliers, alleviating customer worries about being confined to a single ecosystem. UiPath's partnerships include some of the most notable names in AI and enterprise software. OpenAI plans to introduce a ChatGPT connector, allowing customers to incorporate advanced language models directly into workflows, while GPU giant Nvidia (NASDAQ:NVDA) will provide its multimodal Nemotron models and NIM microservices for critical sectors such as healthcare and fraud detection, where data needs to remain on protected systems.
Google's Gemini models are being incorporated to facilitate voice-command automation, enabling users to engage with complex workflows via natural language, while Snowflake will allow connectivity from its Cortex AI to UiPath's platform, helping businesses extract real-time insights and initiate automation tasks, effectively transforming analytics into actionable, end-to-end business operations. Microsoft (NASDAQ:MSFT) will enhance UiPath's integration within its widely utilized enterprise software ecosystems.
UiPath's financials present a mixed picture. The stock is priced at roughly 4.7x trailing revenues, slightly outpacing the S&P 500, and trades at about 23x free cash flow, approximately in line with the overall market. This valuation is reasonable, considering that revenue growth has consistently been quite strong. Sales increased at an average annual rate of 14.6% over the last three years, growing 14.4% year-over-year in the latest quarter, significantly outperforming S&P 500 averages. However, profitability remains underwhelming, featuring a -3.1% operating margin and a 1.3% net margin over the past year, even though the company generated $335M in operating cash flow.
On a positive note, financial stability appears robust: the firm has only $79 million in debt, with a Debt-to-Equity ratio of 1.1%, and possesses $1.4 billion in cash, amounting to more than half of its total assets. Nevertheless, a significant risk is its ability to withstand downturns: PATH lost 87.6% of its value during the 2021-22 inflation-induced stock market decline and continues to be far below its $85 peak, indicating notable volatility.
Although the company's reasonable valuation, paired with its strong recent growth, makes the stock somewhat attractive at current prices. Furthermore, the shift towards agentic AI coupled with the new partnerships could potentially alter the narrative for the stock, although successful execution and improved profitability will be crucial.
That being stated, if you're looking for upside with lesser volatility than holding an individual stock like PATH, consider the High Quality Portfolio. It has consistently outperformed its benchmark -- an amalgamation of the S&P 500, Russell, and S&P MidCap indexes -- and has achieved returns exceeding 91% since its inception. Why is this the case? Collectively, HQ Portfolio stocks yield better returns with lower risk compared to the benchmark index; providing a smoother investment experience, as illustrated in HQ Portfolio performance metrics.