UiPath (NYSE:PATH), an artificial intelligence (AI) and automation software provider, delivered impressive financial performance, beating top and bottom line expectations for Q1 FY25. However, the company issued disappointing guidance for the rest of Fiscal 2025 and announced the resignation of its CEO. PATH stock has dropped 44% in the past month and continues to show negative price momentum. The sell-off may be overdone, and the stock now trades at a discount to industry peers. However, investors may want to proceed cautiously and hold off until the dust settles and the company delivers more positive news.
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UiPath’s New Turn
UiPath is a software-as-a-service (SaaS) company that offers a comprehensive automation platform encompassing various robotic process automation solutions. The software suite allows organizations to effectively build, manage, run, and measure their automation processes. These processes are enhanced with embedded AI, ML (machine learning), and NLP (natural language processing) technologies, which improve decision-making capability and information processing.
The company’s growth metrics have been robust, with the annual recurring revenue (ARR) surging 21% year-over-year through the first quarter. This, coupled with a client base of 10,800, including several renowned recent entrants, underscores UiPath’s strong customer attraction and market penetration capacities, suggesting a robust base to build upon for the future.
UiPath announced leadership changes, with Rob Enslin stepping down as the CEO and member of the UiPath Board of Directors effective June 1, 2024. He was succeeded by Daniel Dines, the founder and former CEO of UiPath, who most recently held the position of Chief Innovation Officer and Executive Chairman of the Board.
Analysis of UiPath’s Recent Financials, Outlook
For Q1 FY25 (ended April 30, 2024), UiPath reported results that surpassed analyst estimates. Revenue of $335.11 million slightly exceeded the consensus estimate of $333.04 million and marked a 16% increase year over year. Cash flows from operations and non-GAAP adjusted free cash flow reached $100 million and $101 million, respectively. Reported earnings per share (EPS) of $0.13 outperformed expectations of $0.12.
Looking ahead, UiPath issued guidance for Q2 FY25, with revenue projected in the range of $300 million to $305 million and ARR expected to be between $1.543 billion and $1.548 billion. The company expects non-GAAP operating income to break even in the second quarter. Furthermore, the company adjusted its guidance for the full-year Fiscal 2025, projecting revenue from $1.405 billion to $1.410 billion versus a consensus of $1.56 billion. It projects a full-year ARR between $1.660 billion and $1.665 billion, down from initial estimates of $1.725 billion -$1.730 billion.
What is the Price Target for PATH Stock?
Analysts reacted swiftly to the news of the change in leadership, with most shifting recommendations to Hold status while adjusting price targets downward. For example, Macquarie analyst Frederick Havemeyer downgraded UiPath to Neutral from Outperform and reduced the price target on the shares from $29 to $12. The analyst thinks that the sudden departure of the CEO and guidance cut suggests that the company’s go-to-market strategy is likely to underperform its expectations.
UiPath is rated a Hold based on 17 Holds and two Buy recommendations. The average price target for PATH stock is $15.85, which represents a potential upside of 40.76% from current levels.
The stock has been highly volatile, sporting a beta of 2.12, though trending downward for some time. It has shed 36% of its value in the past year. The stock currently trades at the bottom of its 52-week price range of $11.27 to $27.87 while demonstrating ongoing negative price momentum by trading below its 20-day (13.91) and 50-day (16.92) moving averages. The ongoing slide has driven the stock down into relative value territory, with a P/S ratio of 4.75x, half that of the Software Infrastructure industry average of 9.73x.
Final Thoughts on PATH
UiPath demonstrated solid financial performance, surpassing top and bottom-line expectations for Q1 FY25. Yet, the company’s downward guidance revision and the sudden leadership change warrant a cautious approach from investors. The company’s shares have dropped significantly in the past month. The stock now trades at a significant discount to industry peers, which may offer a value investment opportunity only if the company can reverse its negative trends and deliver more positive news in the next few quarters.
