If you're investing in individual stocks, chances are you're trying to beat the market (often measured by the S&P 500's annual return of around 10%). Otherwise, you're putting a lot of effort into a practice that could easily be accomplished by buying an index fund.
Pinpointing stocks with the potential to double quicker than the market isn't easy, but it's doable. One that I've found that I'm confident will outperform the S&P 500 is UiPath (PATH +0.96%). From its current growth rate and market trends, I think UiPath can double in four years, much faster than the S&P 500's usual seven years.
UiPath's primary market is rapidly growing
UiPath is a provider of robotic process automation (RPA) software. This allows its users to automate repetitive tasks, helping them to focus on work that requires original thinking. This has two effects. First, it improves employee productivity. Second, it improves morale as employees aren't mindlessly clicking through the same sequence of operations to create a report.
UiPath also offers artificial intelligence (AI) add-ons, which expand the number of tasks it can automate by using AI to mine information from communications and internal data.
NYSE: PATH
Key Data Points
This is a rapidly growing industry, and Grand View Research projects that the global RPA opportunity will grow nearly 40% compounded annually from $2.94 billion in 2023 to $31 billion in 2030. That's a massive expansion, and UiPath is already benefiting from it.
In the fourth quarter of fiscal year 2024 (ending Jan. 31), UiPath's annual recurring revenue (ARR) rose 22% year over year to $1.46 billion. A quick comparison between Grand View Research's current industry size estimates and UiPath's revenue reveals that the company already controls a substantial part of this market, which is a key point for investors.
For FY 2025, UiPath expects about $1.73 billion in ARR, indicating 19% growth. If UiPath can keep up this 19% growth rate for four years, its revenue will double.
However, just because a stock doubles its revenue doesn't necessarily mean its stock price will double.
The stock performance will follow business growth
In order to determine if a revenue double could result in a stock double, you also have to consider a stock's valuation. Sometimes, stocks are trading at such high premiums that if a company doesn't double its revenue, it would be disappointing, and the stock would get sold off. Nvidia is a great example of a stock with these high levels of expectations.
Because UiPath is just starting to become profitable, I'll use its price-to-sales ratio to assess valuation.
PATH PS Ratio data by YCharts
Unlike many software stocks, UiPath doesn't trade at an ultra-high valuation -- 8.1 times sales could be considered cheap for a software stack. Compared to more mature software companies like Adobe (11 times sales) or even Microsoft (13 times sales), UiPath is much cheaper.
Should UiPath achieve a 25% profit margin, it would trade for about 32 times earnings -- a typical valuation for a software stock.
All of that analysis suggests that UiPath is fairly priced now, so any stock increase will be tied to its business results. Should UiPath double its revenue, its stock price will likely follow suit due to the low valuation starting point.
I'm confident that UiPath's stock will double in the next four years if it can maintain its growth rate. I think the RPA market has plenty of growth ahead, and UiPath is set to capitalize on the rise. If you're looking for a stock that can crush the market over the next four years, UiPath is a perfect candidate.
