Looking for a stock that could put up enormous gains? If you can keep your cool for at least a few years, there's a company specializing in robotic process automation that could push your portfolio up through the roof.
Shares of UiPath (PATH -1.49%) recently bounded higher in response to first-quarter results (for fiscal year 2023) that were much better than expected, but much of that excitement has already fallen away. Here's why patient investors who buy this stock now to hold for the long run have a lot to look forward to.
1. Expanding access to automation
Office workers can accomplish a lot more with workstations connected to the internet than they ever could with a phone and a rotating card file. That said, many of the tasks they perform are repetitive in nature.
Retaining skilled employees is more difficult than ever, so companies are clamoring for solutions that can boost productivity while reducing burnout. With help from UiPath, employees without coding experience can design software robots that "read" screens and emulate the keystrokes they'd rather not make themselves.
For example, Spotify Technology's accounting department uses software bots that constantly check currency exchange rates during off hours, so that the accounting department can act when those rates are most favorable. Accountants don't work for free, even when all they need to do is hit the refresh button every few minutes. Bots, on the other hand, happily work around the clock without ever needing a break.
Image source: Getty Images.
2. UiPath: stronger than it looks
UiPath's ability to boost office productivity is rapidly gaining attention. Shares of the stock recently jumped more than 15% overnight in response to fiscal first-quarter results that suggest increasing demand for UiPath's solutions. During its fiscal first quarter, UiPath's annualized renewal run rate (ARR) soared 50% year over year, to $977 million.
UiPath is a global business that recognizes a majority of its revenue from markets outside of America. On its recent conference call, the company said it was feeling the same currency exchange challenges that recently caused Salesforce and Microsoft to lower their revenue expectations.
A strengthening U.S. dollar makes reporting big gains extra challenging, but UiPath continues to impress. Revenue soared 32% year over year to $254 million during the fiscal first quarter, which ended April 30.
In a testament to the strength of its business, UiPath raised its guided range for fiscal 2023 revenue. Instead of the previous range of $1.075 billion to $1.085 billion, management told investors to expect between $1.085 billion and $1.09 billion.
3. Positive cash flow coming soon
UiPath finished April with around $1.8 billion in cash after losing $123 million in its fiscal first quarter. By the end of the year, though, its cash balance could begin expanding with contributions from operations instead of investors.
During its fiscal first quarter, UiPath reported a strong gross margin of 85% on an adjusted basis. The company's also executing well with sales and marketing expenses that actually declined year over year. With expectations to continue these trends, UiPath told investors to look for positive cash flow in the second half of the year.
4. A long virtuous cycle ahead
In the decade ahead, the global economy could wallow in a deep recession, or everything could return to pre-pandemic norms. Nobody knows what's coming, but we can be fairly confident that UiPath will stay at the front of the industry that it currently leads.
UiPath's platform is built to read documents and emulate employee keystrokes to fill out forms. Software robots generally improve with experience, and UiPath's robots are getting significantly more experience than any of its competitors. This virtuous cycle could give the company a lasting advantage over the competition.
UiPath also benefits from a network effect that gets stronger every time a new employee learns how to automate away the most tedious parts of their job. Once employees are trained and bots are implemented, leaving UiPath for a competitor comes with prohibitively high switching costs. It might not happen in 2022, but there's a good chance that investors who buy this stock at recent prices will see market-beating gains further down the road.
