Investors have taken UiPath (NYSE:PATH) down south in the last two quarters. The correction in PATH stock has accelerated recently with a plunge of more than 42% in the last month.
This does not come as a surprise considering its growth guidance for the year. In 2021, the robotic automation company reported revenue growth of 47% on a year-over-year (YOY) basis.
For the current year, the company has provided top-line growth guidance of 21% to $1.1 billion. This disappointed the markets and the shares skidded.
One reason for the relatively muted guidance is the company’s exposure to Eastern Europe and Russia. This is likely to be a near-term headwind. It seems the markets are also discounting the point that a recession is likely in the U.S. in 2023. In a globally synchronized economy, other countries will be impacted.
Looking forward, I believe PATH stock will trend higher after some consolidation. Markets tend to overact on short-term news and the long-term growth story is ignored. Based on estimates by Forrester, the global automation addressable market is likely to be $30 billion by 2024. This provides ample revenue upside scope.
From a company-specific perspective, its net new annualized renewal run-rate (ARR) for 2021 was $344.8 million. This increased by 51% on a YOY basis.
Additionally, the company’s dollar-based retention rate was robust at 145%. Existing customers deployed more automation and capabilities across the platform. This also indicates higher revenue potential from existing cohorts over time.
The UiPath automation cloud has also gained significant growth traction. With only 27 months since launch, the number of customers using its cloud products has swelled to 3,800. This has translated into total cloud ARR of $140 million.
With operating leverage, the company’s non-GAAP operating margin has increased to 14% in 2022. On a YOY basis, operating margin has improved by 1,200 basis points. Clearly, there are encouraging business developments.
Growth stocks in general have taken a beating in the recent past. The markets seem to be adjusted to a lower growth trajectory for several stocks and industries. This provides an attractive entry opportunity into quality businesses.
PATH stock seems attractively valued after a deep correction. The most bearish among 21 analysts covering PATH stock has a price target of $20. The stock currently trades below this. Trading a reversal or long-term exposure can be considered at current levels.
On the date of publication, Faisal Humayun did not hold (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.
