Chip company Nvidia has been the toast of investors' portfolios. Shares are up a whopping 500% since the start of 2023 when artificial intelligence (AI) broke onto the scene with the rise of ChatGPT. Sadly, it's hard to see Nvidia's stock replicating that 500% return over 15 months again anytime soon, so investors looking for a grand slam might need to look elsewhere.
There's a lot to like about UiPath (PATH 0.26%) that could fit the stock into the pre-hype Nvidia mold. The software company is a leader in a growing field, but analysts seem to be underestimating its long-term potential.
Here is what you need to know.
The robotic process automation landscape
When most people think of robots taking over for humans, they imagine physical robots. However, software robots are already doing it. Robotic process automation (RPA) uses software to automate human tasks, such as documentation, filling out forms, and other repetitive tasks. UiPath is a leader in this field, as deemed by third-party benchmarks such as Gartner's Magic Quadrant system.
UiPath's software robots monitor tasks and then learn and automate them. RPA technology could change the corporate landscape by taking over mundane tasks for millions of employees. Grand View Research estimates this was a $3 billion market last year and will grow tenfold by 2030.
PATH Revenue (TTM) data by YCharts
The company's $1.2 billion in annual revenue shows how big of a market player it is, so protecting that market share could lead to years of consistent growth as the market expands. UiPath faces competition from other technology companies like Microsoft. However, with UiPath's RPA focus it has carved out its spot in the market.
A stellar earnings report
UiPath had an excellent quarter, evidenced by its recent earnings report. The company's non-GAAP earnings per share were $0.22 in Q4, topping analysts' expectations by $0.06. Revenue came in at $405 million, $21 million over estimates, and a 31% year-over-year increase. This adds to UiPath's perfect record. It has bested top- and bottom-line estimates every quarter as a public company.
Management is guiding for up to $1.56 billion in revenue for its fiscal year 2025 (ending Jan. 31, 2025). That would be a 20% increase over this past year. Additionally, management expects $350 million in free cash flow, a healthy 22% conversion rate.
Importantly, UiPath gets customers to spend more over time. It reported a 119% net revenue retention rate in Q4. That puts a high floor in for revenue growth and sets up UiPath to potentially beat its revenue guidance if it can muster decent customer growth over the next four quarters. The company has 10,830 customers today, a fraction of the estimated 351,000 businesses employing at least 250 people worldwide.
Is UiPath not getting the credit it deserves?
No, it's not Nvidia-style rocketship growth, but UiPath has the makings of a long-term compounder. That can be powerful, especially when the stock is as cheap as UiPath is today. Shares are still down over 70% from their highs, last seen in their early days. UiPath went public during the last bull market bubble and hasn't recovered yet.
Shares trade hands at just 44 times earnings, while analysts believe earnings will grow by an average of 22% annually over the next three to five years. The company's revenue growth alone should drive earnings growth to meet estimates, and there's enough cash on hand to retire 13% of shares if it wanted.
I'm not saying that's what will happen, but there is an argument that analysts might be underestimating UiPath's earnings growth potential. Big stock moves happen when stocks outperform expectations, potentially setting up investors to enjoy outsized returns if UiPath performs to its potential.
