Boring office work is a drag for employees, and it costs businesses billions of dollars in lost productivity each year. Automation software company UiPath (NYSE:PATH) replaces bored employees with tireless digital "robots." After becoming one of the largest software IPOs in US history, UiPath is not a cheap stock -- but here are three reasons to believe the hype.

1. Companies are wasting money on simple tasks

Employees can represent up to 70% of most companies' expenses. Robots have helped companies build things cheaper and faster over the years, but the vast majority of office work is still done by hand.

Office employees do mundane jobs like filling out forms, password resets, bookkeeping, and applications day in and day out. Some studies estimate that repetitive work costs US businesses as much as $1.8 trillion per year.

Software network on computer

IMAGE SOURCE: GETTY IMAGES

Large companies with many employees feel the pressure of rising wages and costs of benefits, so they need to find tools to become more efficient and save money. 

2. UiPath is proving to be an industry leader

UiPath sells software "robots" that do the work of human employees. The company has estimated that its robots cost anywhere from two to fifteen times less than than a full-time employee per year, and can do as much as five times the work.

Each robot works in three basic steps:

  1. See: The software monitors a human user, recording their mouse clicks and keyboard presses to learn their actions.
  2. Think: It then identifies tasks that could potentially be automated.
  3. Do: It interacts with more than 4,000 third-party applications to automate those tasks.

UiPath makes these robots easy for customers to use, with different product suites for simple and complex jobs. Research firm Gartner has labeled UiPath as a leader in the "robotic process automation" field, estimating that in 2020, the company added more revenue than its top nine competitors combined.https://d1io3yog0oux5.cloudfront.net/_e5faab2305046a26ef459a369c2a43cd/uipath/db/1086/9812/pdf/UiPath_1Q%2722_Investor_Presentation.pdf

Large corporations have embraced UiPath's products: Its customer list includes 80% of the Fortune 10, 63% of the Fortune Global 500, and more than 8,500 customers across the globe.

3. Many different paths to growth

UiPath grows via "land and expand," where customers start small, giving UiPath a simple job to test out. As the company proves its value, customers begin buying more robots and using them in more company departments. UiPath picked up more than 500 new customers between sequential quarters Q4 2021 and Q1 2022, and existing customers spent 45% more over the past year.

UiPath is a subscription business, so it focuses on recurring revenue to show how it's performing. In Q1 of 2022, UiPath grew recurring revenue 64% year over year, and it has grown at a 79% annual rate since 2020 Q1.

The rise of 5G and artificial intelligence in the years to come could boost UiPath's growth efforts. Research firm Forrester estimates that the market for automated business could grow past $60 billion.

Why could UiPath's stock fall?

UiPath is a newly public stock, so investors could see some volatility in the share price as we approach the lock-up expiration in October, when employees and early investors will be allowed to sell shares.

UiPath is not yet profitable, continuing to burn cash as the company invests in sales and engineering staff to aid growth. The stock is also expensive, trading at a price-to-sales ratio of 41 times management's guided 2022 revenues of $855 million. If UiPath sees its revenue growth slow down, investors may decide that it doesn't justify its current valuation.

In Q1, its operating margin turned positive for the first time at 9%, so investors will want to look for this figure to continue rising as UiPath tracks toward turning a profit. If lock-up expiration or an overall market downturn pushes shares lower, investors could have an opportunity to buy a company with many years of potential growth ahead of it.

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.