UiPath's Stock Price Decreases 49% YTD: How Should Investors Play?
UiPath, Inc. PATH shares have declined 48.7% in the year-to-date period against the 36.5% rally of the industry it belongs to and the 24.3% rise in the Zacks S&P 500 composite.
PATH’s performance lags Varonis Systems, Inc. VRNS and Trend Micro Incorporated TMICY, which are its close competitors. VRNS and TMICY have rallied 32.3% and 3.4% in the year-to-date period, respectively.
YTD Price Performance
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However, PATH’s recent performance might paint a different picture. UiPath’s stock has shown a 2.1% rise over the past month, implying that there might be a reversal or a halt in the correction phase. The stock is trading above its 50-day moving average, an indication of bullish sentiment among investors.
PATH Trades Above 50-Day Average
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The recent correction in UiPath’s shares might be flattering for investors. But the critical question arises — is this the right time to invest? Let us find out.
Customer-First Strategy Fuels UiPath’s Growth
In the second quarter of fiscal 2025, PATH reported 10,810 customers, declining from the year-ago quarter’s 10,890. Despite the marginal fall, customers with $100,000 or more in annual recurring revenues (ARR) surged from 1,930 in second-quarter fiscal 2024 to 2,163 in the second quarter of fiscal 2025. Also, customers with $1 million or more in ARR increased 15.3% from the year-ago quarter’s actual.
PATH’s performance in terms of dollar-based gross retention and net retention rate in the second quarter of fiscal 2025 was astounding. Dollar-based gross retention was 97%, and 115% was its net retention rate in the second quarter of fiscal 2025. The company witnessed such expansion due to the quick time to value and wide applicability of its automation platform.
The dynamism of UiPath’s platform capabilities continues to drive customer base expansion, including Australian multinational corporations and customers since 2021 who used the company’s Test Suite to help the migration of SAP S/4HANA. The company expanded post-migration and started to work with PATH’s team to incorporate an automation program at a global scale encompassing core automation, testing and AI. Path’s success is focused on its ability to serve customers, which makes the mindset of being customer-oriented more vital than ever before.
UiPath Hikes Revenue Guidance
PATH raised its revenue prediction for the third quarter and fiscal 2025. The company anticipates a top line of $345-$350 million for the third quarter of fiscal 2025 compared with the view of $300-$305 million given at the end of the previous quarter. UiPath expects its revenues for fiscal 2025 to be $1.420-$1.425 billion compared with the previous quarter’s view of $1.405-$1.410 billion. The company’s management was positive about its actions to drive operational efficiencies and streamline its business, which resulted in raising the guidance.
PATH’s Liquidity Position Beats Industry
In the second quarter of fiscal 2025, UiPath’s current ratio of 3.6 outperforms the industry average of 0.92. PATH’s strong liquidity position provides it with financial flexibility and enables it to efficiently mitigate credit risks.
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RPA’s Challenging Landscape Hurts UiPath
PATH is a leading provider of Robotic Process Automation (“RPA”). The lingering threat that the company faces is the commoditization of the RPA’s functionalities and the fact that the developer tools leveraging APIs can replace RPA. Furthermore, the technology is shifting from automating deterministic tasks to more probabilistic tasks, boosting the need for AI and agents. As a result, UiPath is investing in Intelligent Document Processing, Process Orchestration and Autopilot, which might increase R&D expenses, leading to higher costs and revenue fluctuations.
Sluggish Market Affects UiPath
PATH is dealing with a weak demand environment, primarily at the lower end of the market. Despite the stable conditions in the second quarter of fiscal 2025, market weaknesses are sprouting through rising deal scrutiny and prolonged sales cycles. White-collar employment growth has fallen, indicating a weakening labor market condition. Investors are expected to tackle the competition faced by PATH and headwinds in the segment-wide demand. The current hiring data suggests that UiPath’s RPA business has weakened, which is a setback from the historically dominant position that the company held in the market.
PATH’s FY25 Earnings Prospects Weak Despite Strong Sales
The Zacks Consensus Estimate for UiPath’s fiscal 2025 revenues is pegged at $1.4 billion, implying 8.7% year-over-year growth. Despite the strong top-line prospects, PATH’s bottom line appears concerning. The consensus estimate for UiPath’s fiscal 2025 earnings stands at 41 cents per share, suggesting a 24.1% year-over-year decline.
Right Moment to Invest in PATH is Yet to Come
UiPath’s current performance might suggest an expected reversal in the stock performance. However, it does not solidify the end of a correction phase. Therefore, we advise investors to wait for a better entry point, which could yield better returns.
PATH's customer-driven growth, robust liquidity position and raised top-line guidance make it an appealing investment in the long term. However, it will be better for the investors to remain put and watch for further adjustments in the share price before making any move.
UiPath carries a Zacks Rank #3 (Hold) at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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