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This Growth Stock Could Produce 10X Returns

By Trevor Jennewine – Sep 29, 2021 at 7:38AM

Key Points

  • A few smart investments can supercharge your portfolio.
  • UiPath provides automation tools that help organizations operate more efficiently.
  • UiPath has a commanding lead in the robotic process automation industry.

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UiPath sits at the intersection of three trendy technologies.

Over the next month, would you rather receive $10,000 each day, or have $0.01 that doubles on a daily basis? In the first scenario, you end up with $300,000 -- that sounds pretty good. But if you start with $0.01 and double the sum each day for a month (i.e. $0.02 on day two, $0.04 on day three, etc.), you end up with $5.4 million after 30 days.

Now, you'll probably never buy a stock that doubles for 30 consecutive days, but this example still illustrates the power of compounding growth. A few big winners can transform a diversified portfolio into a market-crushing machine, helping you generate life-changing wealth.

With that in mind, I think UiPath (PATH 0.96%) could grow tenfold over the next 10 years. Here's why.

Robot working at a computer, symbolizing robotic process automation.

Image source: Getty Images.

UiPath has a $60 billion market opportunity

UiPath's mission is to empower workers through automation. Management envisions a future in which people work alongside software robots. To that end, its platform blends three cutting-edge technologies, enabling clients to build intelligent bots capable of automating both simple and complex tasks.

  1. Low-code development replaces computer code with drag-and-drop tools, simplifying the software development process.
  2. Robotic process automation (RPA) makes it possible to automate simple, repetitive tasks like syncing databases, completing forms, and moving documents.
  3. Artificial intelligence (AI) makes it possible to automate tasks that require complex decision-making skills.

Specifically, UiPath actually leans on three types of AI: computer vision, natural language processing, and machine learning. These technologies infuse bots with the ability to see documents, understand language, and learn from human behavior, meaning they become more proficient over time.

As an example, banks could use UiPath's software to automate the mortgage application process. Intelligent bots could review applications, add the necessary information (e.g. credit scores, income), verify titles and deeds, and incorporate notes from home inspections. Then, using all of that data, the bots could predict the likelihood of a default, and pass the work to a human employee for review.

In short, UiPath aims to boost efficiency and drive productivity through automation, and its platform has applications in virtually every industry. In fact, management puts its addressable market at $60 billion, and that figure will likely get bigger in the years ahead.

UiPath maintains a competitive position

UiPath has an enormous partner network that spans over 4,700 businesses. This ecosystem includes consulting firms like Accenture and Deloitte, which help mutual clients deploy the platform and build automations. But it also includes technology partners like Microsoft and Amazon, which provide integrations with the UiPath platform. These pre-built connectors accelerate time to value, allowing clients to quickly automate tasks in Microsoft 365, Amazon Web Services, and many other business-critical applications.

That advantage has led to widespread recognition from industry analysts, and strong customer demand. In fact, UiPath currently holds a 32% market share in the RPA industry, while the next-closest competitor has just 18%, according to the International Data Corp. And earlier this year, Forrester Research recognized UiPath for its best-in-class RPA platform, citing a stronger current offering, a stronger growth strategy, and a larger market presence than any rival.

But I think research company Gartner delivered the most impressive statistic: In 2020, UiPath added more revenue to its top line than the next nine competitors combined. In other words, the company not only leads the industry, but it's also gaining market share.

Not surprisingly, UiPath has added customers and grown revenue at a rapid clip over the past year.

Metric

Q2 2021 (TTM)

Q2 2022 (TTM)

CAGR

Customers

7,000

9,100

30%

Revenue

$451.2 million

$736.9 million

63%

Source: UiPath SEC filings. TTM = trailing-12-months. CAGR = compound annual growth rate. Note: Q2 2022 ended July 31, 2021.

In fiscal 2021, UiPath posted a gross retention rate of 97%, meaning just 3% of customers canceled the service. And in the most recent quarter, net retention hit 144%, suggesting a 44% uptick in average customer spending on the past year. Collectively, these metrics demonstrate the value and stickiness of the UiPath platform.

The potential for tenfold returns

Looking ahead, automation has the potential to drive efficiency across a range of industries. In fact, UiPath estimates that organizations with 10,000 employees could each save $30 million per year by helping every person automate just 20 minutes of work each day. That value proposition should be a powerful growth driver for the RPA industry.

With that in mind, UiPath benefits from a strong competitive position and a big market opportunity, and I believe this stock could jump tenfold over the next decade. Case in point: If UiPath can grow its top line at 35% per year, sales would reach $12.7 billion by 2031. Assuming the stock trades at 22 times sales -- a more reasonable valuation than its current price-to-sales multiple of 37 -- the company would grow tenfold to achieve a market cap of $280 billion.

Of course, no one knows the future, and it's always important to maintain a diversified portfolio. But I think this growth stock looks like a smart long-term investment.

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Teresa Kersten, an employee of LinkedIn, a Microsoft subsidiary, is a member of The Motley Fool's board of directors. Trevor Jennewine owns shares of Amazon and UiPath Inc. The Motley Fool owns shares of and recommends Amazon, Microsoft, and UiPath Inc. The Motley Fool recommends Gartner and recommends the following options: long January 2022 $1,920 calls on Amazon and short January 2022 $1,940 calls on Amazon. The Motley Fool has a disclosure policy.

Stocks Mentioned

UiPath Stock Quote
UiPath
PATH
$12.56 (0.96%) $0.12

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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