UiPath (NASDAQ:PATH) stock represents yet another software automation company, losing money but valued at more than 20 times its revenue.
This is not the kind of automation company the current market is looking for.
UiPath software’s ability to let users create, organize, and run artificial intelligence “robots” to perform repetitive screen tasks is admirable. But since coming public last April at $56/share, such companies have fallen out of fashion.
PATH stock opened Feb. 18 at $37/share. That’s a market capitalization of $19.2 billion for a company that had revenue 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 30.
This is the kind of stock “tech whisperer” Cathie Wood loves. Right now, no one else does.
Robotic Process Automation (RPA) is a simple way to create artificial intelligence. RPA tools watch someone work off a graphical screen, say pulling orders off an email and putting them into a bookkeeping system. Then it performs the same tasks using its Application Program Interface (API). The resulting robotic worker then joins others on a virtual line that can be organized and managed.
UiPath was founded back in 2005 in Romania. It went global with venture capital in 2015, then moved to New York in 2017. It has been growing by buying other, related companies in Europe, and was on the CNBC Disrupter 50 list in 2020.
This is cool stuff. As our Ian Bezek wrote last month, UiPath is one of the best growth names out there. The problem right now is that no one wants growth names. They want profit.
Valuing PATH Stock
UiPath’s initial public offering (IPO) left it with $1.776 billion in cash and equivalents at the end of October. It had a net loss of $462 million during the first three fiscal quarters. The good news is that most of the loss came in the form of stock, handed out as compensation. The cash lost from operations was $49 million. By husbanding real cash and keeping an eye on expenses, UiPath management can get through this tech winter and make it to spring.
Even at its current price, UiPath still has a very high price-to-sales ratio. Management could cut losses by reducing marketing, $173 million during the most recent quarter. The total loss for the October quarter was just $122 million. The danger is the risk of a slowing growth rate, about 50% through the first three quarters. But that’s what human managers are paid for.
If management can hold things together, UiPath might be attractive to a mature software company like ServiceNow (NYSE:NOW) or Salesforce (NYSE:CRM). Salesforce presently sells for about 8 times revenue, with positive earnings, ServiceNow at 18 times revenue.
The Bottom Line on PATH Stock
UiPath could make it through the present market and be an attractive buyout candidate, assuming it can rapidly approach profitability and keep its growth going. A buyer would absorb its operating costs into a larger organization, move development to lower-cost areas, and make RPA a plug-in for its own software.
UiPath would need to fetch a higher price than its current one to justify that stock it handed out last year. It needs a better market before it can be sold. The good news is that the company can wait for that better market to develop.
Assuming the war drums keep beating, you should be able to get PATH stock for even less than its current price. You would then wait for the war to be over, the skies to clear, and RPA software’s value to be measured more accurately, to see if you have a profit.
On the date of publication, Dana Blankenhorn held a long position in NOW and CRM. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Dana Blankenhorn has been a financial and technology journalist since 1978. He is the author of Technology’s Big Bang: Yesterday, Today and Tomorrow with Moore’s Law, available at the Amazon Kindle store. Write him at email@example.com, tweet him at @danablankenhorn, or subscribe to his Substack.