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Prediction: This Will Be UiPath’s Next Big Move

UiPath (PATH 2.02%) has seen its share of big stock price moves over the past three years. The price is up about 41% over the past year; however, it is down just under 20% year to date.

A lot of UiPath’s stock price volatility happens when the company reports earnings. The stock price has moved 10% or more during the trading session following a quarterly report’s release eight of the past nine times the company has reported. During that time, its biggest upward move was a 26% gain after it reported its fiscal third-quarter results in November, while its largest downward move was a 31% decline in March of 2022.

Given that trend, the key to UiPath’s next big move should lie in its earnings momentum.

Accelerating revenue growth

UiPath saw revenue growth accelerate throughout its fiscal 2024, which ended in March. After posting 7% year-over-year revenue growth in fiscal Q4 2023, it saw revenue growth accelerate to 18% in fiscal Q1, 19% in fiscal Q2, and 24% in fiscal Q3, and it jumped all the way to 31% in its most recently reported quarter, which was its fiscal Q4.

UiPath uses a land-and-expand strategy — once it gains a new customer, it tends to nicely grow within that customer. That once again showed up in its fiscal Q4 results when it saw its net dollar retention come in at 119%. This means that existing customers spent 19% more with the company in the quarter compared to a year ago.

Adding new customers has been more problematic for UiPath, and the company saw its customer count go down slightly from fiscal Q3 to fiscal Q4, ending at 10,830. However, these losses have been at the lower end of the market, and it has added more large enterprise customers. That’s a trade-off a company will make every time.

The number of UiPath’s customers with annual recurring revenue (ARR) of over $1 million rose 26% year over year and 9% sequentially to 288. Meanwhile, customers with $100,000 or more in ARR increased 15% year over year and 4% sequentially to 2,054.

Stock sell-off

Despite putting up its strongest revenue growth in two years, UiPath shares fell nearly 8% in the session following its earnings and is down about 20% since the report. Part of the reason for the weakness in the stock could be fears that Microsoft could start impeding on its business through its copilot AI offerings. However, UiPath’s solutions have proven to be very sticky, as evidenced by its strong net dollar retention. Meanwhile, its Intelligent Document Processing (IDP) offering, which would be the most impacted, has been gaining traction.

Product innovation is helping drive upsell opportunities for UiPath, with the company saying that 65 out of its top 100 deals now include IDP. This solution extracts, interprets, and processes data from documents, whether they are Word documents, images, PDFs, or even handwritten. Meanwhile, the company saw 75% growth last quarter from its Test Suite customers, a leading tool for application testing.

Looking ahead, UiPath forecast full-year fiscal 2025 (ending in March 2025) revenue to come in between $1.508 billion to $1.513 billion, which is about 19% growth. This guidance looks conservative for a few reasons. One is that UiPath has strong net dollar retention and new product introductions should continue to keep sales to existing customers high. At the same time, the company has implemented some recent partnerships to help drive new customer growth. This includes an expanded partnership with Alphabet’s Google Cloud, as well as partnerships with Deloitte, Ernst & Young, and SAP.

UiPath’s next big move is higher

As a growth stock, revenue growth will typically play a big role in where the UiPath stock is headed. On that front, as stated above, its current guidance looks conservative, which could lead to a series of beat-and-raise quarters throughout the rest of the year.

At the same time, the stock is relatively cheap, trading at a forward price-to-sales (P/S) ratio of just over 7 times. The company also holds nearly $1.9 billion in net cash, so on an enterprise value (EV)-to-revenue basis it trades at under a 6 times multiple.

PATH PS Ratio (Forward) data by YCharts

An inexpensive valuation combined with the strong potential of a series of beat and raise quarters from this leading artificial intelligence (AI) automation company could lead to a much higher stock price for UiPath by the end of this year. While nothing is guaranteed, my prediction is that UiPath’s stock will climb much higher, with its next earnings report being the catalyst.

This post appeared first on fool.com

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