Taking a look at famous investors' portfolios is a smart thing to do, as it gives you an idea of where their teams think money can be made in the market. It can lead to new ideas or challenge you to examine your holdings.
For growth investors, Cathie Wood and her team at Ark Invest is a great place to start, and one of their largest holdings across all funds combined is UiPath (PATH 0.26%). UiPath is the firm's fourth-largest holding, accounting for 5.92% of assets. Clearly, Cathie Wood and Ark believe in UiPath, and I do as well. In fact, it's one of my top stocks to own heading into 2024.
UiPath is a practical application of AI technology
UiPath's software specializes in robotic process automation (RPA). This software can help automate repetitive tasks, like filling out a spreadsheet or an expense report. Now, there is only so much one can automate without intelligent inputs, so UiPath is also making large investments in its artificial intelligence (AI) programs as well.
With its AI products, UiPath can utilize legal documents, email communication, and other data to inform the RPA what should be input into various fields. This dramatically increases the use case for UiPath's products.
It can also deploy AI to monitor employees' tasks and pinpoint ones that are repetitive. Having a second set of eyes (especially unbiased ones) that can detect these tasks is crucial, as humans cannot always recognize when they are doing the same repetitive job.
As to why I'm excited for UiPath's future, it's because management teams across the world are asking what they can do to implement AI to improve productivity. UiPath's products are a logical progression down this path, making 2024 a potentially huge year for UiPath.
Additionally, the market opportunity for RPA will explode in the future. Polaris Market Research estimated the RPA market opportunity to be about $2.7 billion in 2022. However, it thinks it will expand to $66 billion by 2032. That's massive growth, and with UiPath's strong foothold in the industry, it is a top stock pick for the coming decade.
These are only some of the reasons why I'm excited about the stock, but its financials also paint a great picture.
The stock doesn't command a premium like some of its peers
Because UiPath is still growing rapidly and attempting to capture every piece of business it can, it should be no surprise that it is unprofitable. But, with annual recurring revenue (ARR) increasing at a 25% pace to $1.3 billion in the second quarter of fiscal year 2024 (ending July 31), it gets a pass.
Still, it should be noted that UiPath's operating margins improved year over year. Last year, UiPath posted a 50% operating loss margin in the third quarter. This year, its loss margin was 27%, which isn't great, but it's at least moving in the right direction.
Despite this financial success, the market hasn't slapped a premium valuation on the stock.
PATH PS Ratio data by YCharts.
A ratio of 9.2 times sales is a more than reasonable price for UiPath, especially considering that many other AI stocks trade around 20 times sales, even though they are growing much slower.
UiPath is positioned to be a great investment in 2024 and beyond. With Wood and her team at Ark behind the stock as well, you're in good company if you decide to purchase shares for yourself.
