UiPath‘S (NYSE: PAD) The first quarter report was a stunning affair. Reported results were within management’s margins, but top-end revenue figures were undermined by low profits and downright disappointing expectations for the future. The business automation expert lowered its full-year revenue forecast by 10% and operating profit forecast by 51%.
Many analysts quickly lowered their price targets on UiPath stock, and the stock price closed 34% lower the next day. But it wasn’t a total withdrawal; opportunistic investors like Cathie Wood of Ark Invest called it a buying opportunity and bought 2 million shares.
The conflicting data and investor responses add up to one burning question. Should You Buy or Sell UiPath Stock Now?
Why UiPath stock is falling
This isn’t UiPath’s first price drop rodeo.
The stock has fallen a total of 53% year-to-date and a heartbreaking 83% since its market debut in the summer of 2021. The company built its services around artificial intelligence (AI), but the stock never reached the top. The tail end of the generative AI boom in recent quarters.
Frankly, Wall Street’s indifference toward UiPath never made sense to me.
The company is growing like gangbusters, with revenue up 16% year over year and earnings per share up 18% in the first quarter. The reduced full-year revenue expectations still point to roughly 8% revenue growth and a 31% increase in operating profit.
And the stock wasn’t even expensive leading up to the Q1 update. Today, UiPath trades at a very reasonable 21 times free cash flow and 5 times revenue. I mean, these valuation ratios would be reasonable for a slow-growth value stock – they’re ridiculously low in light of UiPath’s robust business growth.
Changes in leadership can be painful
The numbers obviously don’t tell the whole story.
Rob Enslin also announced his resignation as CEO of UiPath in that earnings report, unexpectedly ending his top title tenure after just three months. Founder and former CEO Daniel Dines is back in UiPath’s corner office. Enslin’s departure was based on “personal reasons” and he will continue to serve in an advisory role to UiPath’s management team.
So it’s an amicable parting, but it’s never fun to see a CEO walk out immediately after cleaning out his desk drawers. Manager turnover is rarely good news.
Moreover, the UiPath bears found new fodder in the slowing revenue growth guidance. The company today seeks robotic automation agreements with larger and more bureaucratic customers, resulting in longer negotiations for multi-year service agreements. During the earnings call, Dines admitted that sales force incentive programs had likely led to too many large-scale contracts. The company is once again reviewing its sales strategy, hoping to reaccelerate the declining sales growth trend.
Why Cathie Wood is right about UiPath’s promising AI game
UiPath was Cathie Wood’s favorite AI stock before the price drop, so it’s not surprising to see her double down on that bet at a lower price.
And I think Wood is doing the right thing. UiPath may not be the biggest name in AI operations, but it doesn’t have to be. From a growth investor’s perspective, I look at a tempting combination of robust corporate earnings and modest stock prices. The CEO drama isn’t the end of the world, as Daniel Dines has always had a firm hand on UiPath’s long-term strategy helm anyway. And have you noticed that UiPath is highly profitable, with a clear path to even richer results?
Cathie Wood benefits from a good fire sale here. UiPath still has a lot of growth to do, and its stock price doesn’t seem to take into account the resulting long-term gains.
Long story short: UiPath seems like a good buy right now.
Should you invest $1,000 in UiPath now?
Before you buy shares in UiPath, consider the following:
The Motley Fool stock advisor The analyst team has just identified what they think is the 10 best stocks for investors to buy now… and UiPath wasn’t one of them. The ten stocks that made the cut could deliver monster returns in the coming years.
Think about when Nvidia created this list on April 15, 2005… if you had $1,000 invested at the time of our recommendation, you would have $750,197!*
Stock Advisor provides investors with an easy-to-follow blueprint for success, including portfolio building guidance, regular analyst updates and two new stock picks per month. The Stock Advisor is on duty more than quadrupled the return of the S&P 500 since 2002*.
View the 10 stocks »
*Stock Advisor returns June 3, 2024
Anders Bylund has no position in any of the stocks mentioned. The Motley Fool holds and recommends positions in UiPath. The Motley Fool has a disclosure policy.
UiPath’s stock price just dropped. Time to buy? was originally published by The Motley Fool
