What happened

Shares of UIPath (NYSE:PATH) fell 15% in June, according to data from S&P Global Market Intelligence. The company issued a solid fiscal 2022 first-quarter report card (the three months ended April 30) in June, but the stock was up as much as 20% since it made its publicly traded debut this spring. A cooling-off was thus in order after the company confirmed it expects to continue growing at a rapid pace the rest of this year.

So what

As to the specifics from its quarterly report, revenue was up 65% year over year to $186 million. Free cash flow was negative $20.1 million in the period, but that's because UIPath is spending heavily to maximize its expansion right now. With a gross profit margin of 74%, this will be a highly profitable firm one day in the not-so-distant future.  

Three workers in an office gathered around a computer monitor.

Image source: Getty Images.

For now, though, UIPath is a growth stock. And on that front, there was a lot to like with the company's outlook for the rest of its current fiscal year. Management said to expect annual recurring revenue to increase at least 47% year over year to $850 million by the end of its current fiscal year 2022.  

Now what

UIPath will be an increasingly important player in the software industry. It's one of the leaders in robotic process automation (RPA), software-based bots that help automate tasks in the workplace like data entry and record keeping. With many businesses facing a shortage of employees, and others looking for new ways to unlock the power of cloud computing, RPA software is being adopted at a rapid pace. Management says its total addressable market is worth over $60 billion a year, so it has plenty of room to expand from where it is today.

However, with an enterprise value (market cap minus cash and equivalents) of $32 billion after the stock's decline last month, shareholders are already pricing in years' worth of double-digit percentage growth at UIPath. Wild swings in valuation like in June are to be expected here, even if this company has a promising future. Shares trade for a hefty 38 times current-year expected sales.  

For investors eyeing the potential for UIPath a decade down the road, though, this remains a top IPO stock to keep an eye on right now.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.