Taking a look at what some of the top investors' portfolios look like is a great way to find ideas for your next stock pick. While this can't be the end of your research, it serves as a great starting point.
Cathie Wood and her Ark funds are one place I like to look. Across all the funds' holdings combined, UiPath (PATH 1.54%) is the fifth-largest holding. With nearly 5% of Ark's funds, or about $630 million, in this stock, it's a high-conviction pick for them.
I'm also a huge believer in UiPath stock. Its services have a strong use case in business and ties to artificial intelligence (AI). On top of that, it can be had for a great price.
UiPath is dominating its niche
UiPath's primary product is robotic process automation (RPA) software. RPA allows businesses to automate repetitive tasks, like running reports or responding to customer requests. This frees up employees to do work that requires original thinking, improving productivity and boosting morale. UiPath also integrates AI into its software to expand the number of tasks it can automate.
Through its various AI tools, UiPath can monitor employees to identify tasks for automation, mine communications to understand the context behind a problem, or integrate generative AI. UiPath states that the integration between AI and RPA software can be thought of like this: "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."
That's a powerful combination, and the market for RPA software will only get bigger. The global RPA market opportunity was worth an estimated $2.9 billion in 2023, according to Grand View Research. By 2030, that's expected to increase to $30.9 billion.
UiPath already holds a significant chunk of this market as its annual recurring revenue (ARR) was $1.46 billion at the end of its fiscal 2024 fourth quarter (ended Jan. 31). That figure was up 22% year over year, so UiPath is also experiencing strong growth. For the current year, management expects ARR to climb 18% to at least $1.725 billion.
While UiPath is putting up growth similar to many of its software peers, the stock doesn't command the same premium.
Compared to other software stocks, UiPath looks like a bargain
Many other software stocks have similar growth rates to UiPath. Palantir, The Trade Desk, and Datadog grew at 20%, 23%, and 26%, respectively, in their fourth quarters.
However, these stocks trade at a much higher premium than UiPath when assessed from a price-to-sales (P/S) ratio standpoint.
Data by YCharts. PS Ratio = price-to-sales ratio.
The P/S metric is the best for this group as these companies are still in the early stages of achieving profitability. However, for a company with similar margin profiles and services like UiPath, a 50% discount to its peers is attractive. Another factor to remember is that 20 times sales is very expensive, and the stocks trading at that level may have a hard time living up to such high expectations.
So while UiPath stock may not be "cheap," it's a relative bargain here. For a company growing quickly and dominating its quickly expanding niche, UiPath already has the attention of Cathie Wood and Ark Invest, and it still looks like a fantastic stock to buy and hold.
