Artificial intelligence (AI) is an extremely wide field, making it easy for companies to emerge out of nowhere. One of those companies is UiPath (PATH 0.26%), which specializes in process automation. While this stock has seen a strong 2023 performance, it hasn't seen nearly the boom that its peers have.
So is UiPath the next great AI stock? Let's take a look.
UiPath has a practical application of AI
UiPath specializes in process automation. In many jobs, there could be a long, drawn-out process of filling out a form, submitting it to a database, creating a purchase order, then putting that information into a spreadsheet. Whatever the process, if it's repetitive, UiPath can automate it.
This is known as robotic process automation (RPA), and it perfectly fits into what AI can help a company with.
By using these two technologies together, clients can pinpoint what needs to be automated, and the company can use inputs from an AI program to drive what data is input during a RPA process.
A quote on UiPath's website sums up this interaction nicely: "When conceptualizing RPA and AI, it can be helpful to think of AI as the brain, and RPA as the hands. It's when the two are combined that complex tasks can be completed."
With UiPath representing a practical way to invest in AI, do the business results back it up?
The company is young and growing but working on profitability
UiPath is still a young and growing company, so its results need to be analyzed through that lens. It's currently unprofitable, with UiPath posting an operating loss of $46.4 million or about a 16% loss margin in its latest quarter, according to generally accepted accounting principles (GAAP). However, that loss marks a substantial improvement, as UiPath lost an astounding $116 million during the first quarter of fiscal 2023 (ended April 30, 2022).
With revenue increasing at an 18% clip, the company is moving in the right direction on its path to profitability.
If you examine the company from a different profitability measure, free cash flow (FCF), UiPath is already FCF positive. With UiPath generating $72.7 million in FCF during Q1 (a 25% margin), the company is self-funding and has achieved an important milestone.
With its finances in good shape, is the stock cheap enough to buy? Because UiPath hasn't seen a massive price jump like other AI stocks, it's still priced at a reasonable level.
PATH PS Ratio data by YCharts
That's a good sign for the investment thesis, but there is one more item investors must know about before taking a position in UiPath.
A shakeup in the leadership
UiPath's co-founder, Daniel Dines, has decided to step down from his role as co-CEO. While many may see this as a red flag, you must read past the headlines.
Last year in April, UiPath hired Rob Enslin to serve as co-CEO. Now that Dines feels comfortable with how Enslin can run the company he helped create, Dines is moving to the newly formed chief innovation officer role.
This will allow Dines to focus on engineering. Plus, it will free up an innovative mind to work on projects that can grow UiPath, rather than having him focus on the company's business side.
I think this is far from a red flag. It is a great sign when someone is humble enough to admit their shortcomings in the CEO role and give up that position to focus on what they do best.
Because of that, I think UiPath is a strong buy here. Consider taking a position in this stock before the AI hype can take hold of another great investment.
