Cathie Wood and her team at Ark Invest are known to invest in some of the most innovative businesses out there. While some think they are too far out there, individual investors can examine their holdings and research each company to decide whether it's for them.
One that caught my attention is Ark's second-largest holding across all funds: UiPath (PATH 0.26%). Ark owns more UiPath stock than other heavy-hitters, like Roku, Tesla, and Block Inc, showing how much it believes in the company. After taking a closer look, I can see why they are so excited about the company.
UiPath's product will see widespread adoption
UiPath is a great way to capitalize on the artificial intelligence (AI) trend without getting caught up in the hype. Its robotic process automation (RPA) software allows users to automate repetitive tasks. When AI is added to the platform, it increases the number of tasks that can be automated. Users can also deploy UiPath's AI to monitor employees to detect tasks that may be automated.
While some may see this as robots taking our jobs, that's not a great perspective. What UiPath is really doing is eliminating the repetitive tasks of everyone's job, freeing them to think creatively as only humans can do.
2024 could be a massive year for UiPath, as it's a logical progression in implementing technological solutions to make its users more efficient -- something management teams love. Furthermore, the market opportunity for RPA is expected to explode over the next decade.
According to Polaris Market Research, the RPA market opportunity was around $2.6 billion as of 2022. However, they predict it will rise to $66 billion by 2032. Compared to UiPath's annual recurring revenue (ARR) of $1.38 billion (which rose 24% year over year in Q3 of FY 2024, ending Oct. 31), it shows UiPath has a massive foothold in this rapidly expanding market. That excites me because the stock doesn't trade at that high of a premium.
UiPath is inching closer to profitability
Before its blowout earnings report, UiPath traded for under 10 times sales -- an absolute bargain. Still, at 12 times sales, UiPath isn't overly expensive for the growth it is putting up.
PATH PS Ratio data by YCharts. PS Ratio = price-to-sales ratio.
However, UiPath isn't profitable, although it's making progress. In Q3, UiPath's operating loss margin was 17%. That marks an improvement over last year's 26% loss margin. This gain occurred because management responsibly grew its operating expenses, which were only up 16% compared to revenue growth of 24%.
With UiPath getting closer to profitability, investors can be confident in the direction management is taking the company. With a massive market opportunity, a fair stock price, strong growth, and a plan to reach profitability, UiPath checks almost every investment box a growth-oriented investor could ask for. However, you'll likely have to hold the stock for at least five years to benefit from the expanding RPA market.
So, can UiPath stock make you a millionaire by itself? Maybe, but that's a risky bet if it goes under. Instead, UiPath makes a fantastic pick in a well-diversified portfolio, and its market-beating gains can accelerate your path to becoming a millionaire.
