Finding breakout stocks is the goal of many investors. It's not as easy as it used to be to identify stocks that Wall Street hasn't already pegged as ones to watch, thanks to the accessibility of the internet. But there are a few out there that go under the nose of many investors' radars that could have incredible upside.
I think UiPath (PATH -0.34%) and DLocal (DLO -3.19%) are poised for a breakout.
UiPath
UiPath is a software company specializing in robotic process automation (RPA). RPA is a branch of software that helps users identify repetitive tasks, record them, and implement them so employees don't have to do mind-numbing repetitive tasks. While that may seem like robots taking human jobs, it shouldn't be considered that way. Instead, it's freeing humans to do more creative tasks that robots cannot do.
Additionally, UiPath has an artificial intelligence (AI) product suite that fits nicely with its base RPA product. AI makes the RPA process smarter by extracting information from documents, scraping information from emails, and monitoring employees' work to identify tasks that may not seem repetitive.
Even though UiPath will likely see a boost from the AI hype that has taken the world by storm, it's already doing quite well. In the second quarter of fiscal year 2024 (ending July 31), UiPath's annual recurring revenue rose 25% to $1.31 billion. As management pushes their companies to adopt process automation, UiPath's business will expand well into the future. In fact, Polaris Market Research estimated the global RPA market opportunity at $2.7 billion in 2023. However, it's expected to grow at a 37.9% compound annual growth rate to $66 billion by 2032.
With UiPath already controlling an impressive market share of this lucrative industry, it makes for a massive breakout stock candidate. It also isn't hyped up by the market, as the stock only trades for 8 times sales.
Although prominent investors like Cathie Wood have already identified UiPath as a breakout stock (it's Ark Invest's third-largest holding), there isn't a ton of hype built into the stock yet. So, investors can use the stock's current weakness to establish an excellent entry point in a company with extreme breakout potential.
DLocal
Understanding the financial systems of every country worldwide is a daunting task. Additionally, some smaller countries with less developed economies may not be worth expanding into. But companies may be more apt to expand into other locations if a product could take care of all of these intricacies for a small fee.
This is exactly what DLocal does, as its tools allow companies to operate in India, Egypt, and Brazil, among many others. Among DLocal's customers are some of the biggest players in their fields: Amazon, Shopify, Spotify, Nike, and Booking Holdings all use DLocal, giving them further credence as a business.
Unsurprisingly, DLocal is growing incredibly fast, with total processed volume rising 80% year over year to $4.4 billion in Q2. Revenue was also up 59% year over year, which helped boost its profit by 46%. Unlike many young companies, DLocal is fully profitable and has produced solid profits as a public company.
This allows us to value the stock using earnings, but forward earnings should be considered since DLocal is growing so fast. At 31 times forward earnings, DLocal looks like a steal.
DLO PE Ratio (Forward) data by YCharts
DLocal's role in bringing products enjoyed in developed economies to less developed ones cannot be understated. It's only a matter of time before Wall Street notices this one and sends its stock on an upward trajectory.
