UiPath (NASDAQ:DAAN) stock represents another automation software company, losing money but worth more than 20 times its revenue.
This is not the type of automation company the current market is looking for.
The UiPath software’s ability to let users create, configure, and run artificial intelligence “robots” to perform repetitive tasks on the screen is impressive. But since announcing to the public in April at $ 56/share, such companies have gone out of style.
PATH stock opened Feb. 18 at $ 37/share. That’s a market capitalization of $ 19.2 billion for a company with revenues of $ 602 million for the first three quarters of its 2022 fiscal year. That total should jump to $ 880 million when it reports the full year, which ends in January, on March 30th.
This is the kind of “tech whisperer” stock that Cathie Wood wants. So far, no one else is doing.
Speaking of RPA
Robotic Process Automation (RPA) is a simple way to create artificial intelligence. RPA tools are watching someone work on a graphical screen, for example, taking orders from an email and placing them in a bookkeeping system. It then performs the same tasks using its Application Program Interface (API). The resulting robotic worker will then join the others in a virtual line that can be organized and managed.
UiPath was founded in 2005 in Romania. It became global with venture capital in 2015, then moved to New York in 2017. It grew by buying other related companies in Europe, and is in CNBC List of Disrupter 50 in 2020.
These are cool things. As our Ian Bezek wrote last month, UiPath is one of the best growth names out there. The problem right now is no one likes growth names. They want profit.
PATH Stock Valuation
UiPath’s initial public offering (IPO) left it $ 1.776 billion in cash and equivalent at the end of October. It had net losses of $ 462 million in the first three fiscal quarters. The good news is that most losses come in the form of stock, provided as compensation. The money lost from the operations was $ 49 million. By marrying real money and keeping an eye on costs, UiPath management can get through this tech winter and get to it in the spring.
Even at its current price, UiPath still has a very high price-to-sale ratio. Management could reduce losses by cutting marketing, $ 173 million in the most recent quarter. The total loss for the October quarter was just $ 122 million. The risk is the risk of a slowing growth rate, about 50% in the first three quarters. But that’s what human managers are paid for.
If management can combine things, UiPath could be attractive to a mature software company like Service Today (NYSE:NOW) o Salesforce (NYSE:CRM). Salesforce currently sells approximately 8 times revenue, with positive revenue, ServiceNow at 18 times revenue.
The Bottom Line of PATH Stock
UiPath can do this in the current market and be an attractive buying candidate, assuming it can quickly approach profitability and maintain its growth. A consumer would take its operating costs to a larger organization, move development to cheaper areas, and make RPA plug-in for its own software.
UiPath will need to take a higher price than currently to justify the stock it provided last year. It needs a better market before it can be sold. The good news is that the company can wait for the better market to develop.
Assuming the war drums continue to beat, you should be able to get PATH stock for less than its current price. Then you wait for the war to end, the sky light up, and more accurately measure the value of RPA software, to see if you have a profit.
On the date of publication, Dana Blankenhorn held a long position at NOW and CRM. The opinions expressed in this article are those of the authors, subject to InvestorPlace.com Publishing Guidelines.
Dana Blankenhorn is a finance and technology journalist since 1978. He is the author of Big Bang of Technology: Yesterday, Today and Tomorrow in Moore’s Law, available at the Amazon Kindle store. Write him on [email protected]tweet him at @danablankenhornor subscribe to him Substack.