What happened
Shares of UiPath (PATH +7.08%) popped as much as 13.6% this week, according to S&P Global Market Intelligence. The software automation company reported strong quarterly results that caused shares to rise almost 20% on Thursday, June 2. As of 2:16 p.m. ET on Thursday, the stock is up 13.1% since last Friday's close.
So what
On June 1, after the market closed, UiPath reported its financials for the three months ending April 30. Revenue grew 32% year over year to $245.1 million, and earnings per share (EPS) came in at a negative $0.03. Both numbers beat analyst expectations heading into the report, causing investors to bid up UiPath's stock the next trading day.
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Looking further down the report, the company's annual recurring revenue (ARR) grew an impressive 50% year over year to $977.1 million. Management is guiding for ARR to hit between $1.22 billion and $1.225 billion by the end of this fiscal year next January. This would equate to 32% year-over-year growth if it can hit the high end of this guidance. The company is not yet profitable, with an operating loss of over $100 million just in Q1.
A lot of UiPath's revenue growth is coming from its existing customers. In Q1, its dollar-based net retention rate was 138%, meaning that it had revenue growth of 38% from its existing customers. While this might mean it is struggling to attract new customers at the moment, or at least ones that want to spend money, it is seeing strong adoption from the 1,500+ enterprises that spend more than $100,000 on UiPath products each year.
Now what
After the recent pop, UiPath has a market cap of around $11 billion. Its stock is still down 53% year to date, which shows how badly technology and software companies have gotten beat up in 2022.
Assuming UiPath can hit its $1.225 billion ARR target, the stock trades at a forward price-to-sales ratio (P/S) of 9. This is expensive compared to the market average, but with fast top-line growth and strong gross margins north of 80%, UiPath could still be a fine investment, as long as these impressive growth and margin numbers are maintained over the next three to five years. If you have confidence that this can be the case, now could be a good time to buy UiPath stock.
