They say that investors should always be prepared for volatility. But, after years of a seemingly unending bull market, many traders stopped worrying about risk. They thought that when stocks dropped, the Federal Reserve would immediately come to their rescue. But tech stocks are currently in freefall. For example, UiPath (NYSE:PATH) stock is now down 60% just since last summer.
UiPath develops robotic process automation (RPA) tools,
When the market panicked over Covid-19, the Fed helped speculators, but it’s not doing so now. In fact, the Fed is adding to the bearish sentiment with its threats of multiple rate hikes in 2022. Tightening monetary policy will cause speculative assets — such as unprofitable growth stocks — to tumble.
And, right now, traders aren’t differentiating among growth stocks. The stocks of any companies that don’t make money or produce cash flow have, in general, been getting sold.
Many of these speculative growth stocks are indeed not worth very much and became massively overvalued in 2021. Many of the stocks that are collapsing now will never recover. However, some quality firms are getting thrown out amid this widespread liquidation. UiPath is one of the strong companies whose stock is falling excessively amid the panic.
Ark’s Problems Have Affected UiPath
UiPath is one of the largest holdings in Cathie Wood’s Ark Invest exchange-traded funds. PATH stock is owned by a number of Ark’s ETFs that cover different themes such as innovation, robotics, and the next generation of the internet.
Ark’s flagship Ark Innovation ETF (NYSEARCA:ARKK) has lost more than half its value since it peaked last year. Meanwhile, Ark’s clients are withdrawing a great deal of money from its funds., forcing the company to sell some of its holdings to provide cash to these clients.
There seems to be a perception that anything owned by an Ark fund is now toxic. However, let’s not throw out all the babies with the bathwater. UiPath, for example, has a durable business that should continue to grow rapidly going forward.
UiPath’s Main Business Is Large and Sustainable
It’s important to note that UiPath, which uses a fiscal year, will report the results for its fourth quarter of 2022 over the next few weeks.
For FY ’22, analysts, on average, project that UiPath will report $880 million of revenue. Analysts’ mean estimate calls for the company’s top line to grow more than 30% in each of the next three years, reaching $1.2 billion in FY23 and $1.6 billion in FY24. Most analysts also expect UiPath to generate a small profit this year.
The company’s top-and-bottom line outlooks are impressive, since companies are just starting to utilize RPA tools. Although RPA software is only starting to be widely utilized, UiPath is already set to top $1 billion in annual revenues within the next few quarters. The company had more than 9,000 customers as of the end of its last quarter, including 1,363 customers that produce $100,000 or more of annual recurring revenues.
Also notable is that UiPath had an incredible 144% net revenue retention rate as of July 2021. This means that, on average, existing customers spent 44% more on UiPath’s services than they did during the prior year. With a rapidly-growing customer base and steeply increasing sales to its existing clients, UiPath has built a platform that will withstand the tech sector’s current plunge.
The Verdict on PATH Stock
So far this year, hypergrowth stocks have been getting massacred. There’s no two ways around it. Any growth stock could easily drop another 25% or 50%. As the old expression goes, a stock that is down 90% is one that tumbled 80% and then got cut in half. Don’t bet the house trying to catch these “falling-knife” stocks right now.
But, for prudent investors with solid risk management and a strong stomach, it may be worth trying to put some of their capital to work in disruptive stocks now. And UiPath looks like one of the best options.
Its software is still in the early stages of adoption, and UiPath has a dominant position in its field. And if its stock price drops much further, don’t be surprised if UiPath becomes a takeover target for a larger tech firm.
For investors willing to buy equities despite the current volatility, PATH stock is a name to have on your shopping list.
On the date of publication, Ian Bezek did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Ian Bezek has written more than 1,000 articles for InvestorPlace.com and Seeking Alpha. He also worked as a Junior Analyst for Kerrisdale Capital, a sizable New York City-based hedge fund. You can reach him on Twitter at @irbezek.