What happened
Shares of enterprise-software company UiPath (PATH -1.47%) jumped 20.8% in January, according to data provided by S&P Global Market Intelligence. Early in the month, the stock was down 10% before starting its upward run.
The good times have continued so far in February, with UiPath stock now up 38% year to date, as of 3:15 p.m. ET on Feb. 2. And this impressive performance has easily outpaced the 8% return of the S&P 500.
So what
According to filings with the Securities and Exchange Commission (SEC) on Jan. 4, multiple executives sold UiPath stock on Jan. 1, including co-CEO Robert Enslin, who sold over 55,000 shares. Note that all of the executives who sold still hold the majority of their respective stakes in UiPath, including Enslin, who now owns over 2.1 million shares.
Therefore, this isn't a case of a management team abandoning ship. But this selling pressure could explain why UiPath was down 10% to start the year.
On Jan. 11, UiPath presented at the 25th Annual Needham Growth Conference, as did many other companies. However, following the presentation, Needham analyst Scott Berg reiterated his bullish stance on the company, according to The Fly. Berg reportedly believes the competitive landscape favors UiPath right now, which is why he still gives it a price target of $20 per share, implying almost 14% more upside from where the stock trades as of this writing.
UiPath hopes to improve its position in the competitive landscape by rolling out new features to its software, which is used by businesses to automate repetitive tasks. And on Jan. 17, the company announced tools that allow its customers to automate the testing of their own software products.
Perhaps by launching new tools, UiPath will continue to grow its spending per customer. This is measured with a metric called the dollar-based net-retention rate (DBNRR), where anything over 100% implies customers are increasing their spending from one year to the next. In the third quarter of its fiscal 2023, UiPath's DBNRR was 126%.
Continuing its streak over 100% or accelerating growth beyond 126% is a big part of the long-term investment thesis for UiPath.
Now what
UiPath's financial results for the fourth quarter of its fiscal 2023 aren't expected to be reported until March. However, management is guiding for a roughly 4% year-over-year drop in revenue, which makes the market's enthusiasm to start 2023 a bit of a head-scratcher.
That said, the timing of UiPath's revenue recognition can vary, which is why investors should balance slowing revenue growth by looking at ongoing gains in revenue under contract, reflected in the company's annualized recurring revenue.
In Q3, UiPath's recurring revenue jumped by $66.8 million in just one quarter. And going into Q4, management is expecting about the same-size jump. That's the metric to watch for shareholders, as it's a strong indicator of future growth.
