A disappointing first-quarter earnings report recently wreaked havoc on UiPath's (PATH +2.68%) share price. In a single trading session, shares of the robotic process-automation specialist tanked about 35%.
Investors were responding to the abrupt dismissal of a CEO and a reduced outlook for the rest of its fiscal year.
The road ahead for UiPath might not be as smooth as anticipated, but it looks like the market may be overreacting. Shares of UiPath have been trading for about 56% below the peak it set in February.
NYSE: PATH
Key Data Points
Could UiPath be a smart stock to buy on the dip? Let's look at reasons Wall Street analysts have altered their expectations for the enterprise-software company to see if it can bounce back from recent losses.
Why UiPath stock is down
On May 29, UiPath presented results from its fiscal Q1 that ended on April 30, and they upset shareholders in more ways than one. Fiscal Q1 revenue reached expectations, but management significantly lowered its outlook for the rest of its fiscal year.
Fiscal Q2 revenue is expected to fall about 10% from Q1 levels. For the year, revenue is expected to land in a range between $1.405 billion and $1.410 billion, which is down significantly from the range the company provided a few months ago. In March, management guided fiscal 2025 revenue to a range between $1.555 billion and $1.560 billion.
Business-software sales are cyclical, but this isn't what's happening at UiPath. C3.ai is a competitor in the market for enterprise-scale software that leverages artificial intelligence to automate business processes, and it's firing on all cylinders.
NYSE: AI
Key Data Points
While UiPath was lowering its forward outlook, C3.ai stepped on the accelerator. The company recently raised its revenue outlook to $382.5 million at the midpoint of management's guided range from $307.5 million a few months earlier. The new guidance implies a 43% year-over-year revenue gain.
UiPath's recently reduced guidance implies that C3.ai is eating its lunch. With this in mind, it's no wonder that Rob Enslin, the current CEO, exited the company on May 31. The abrupt CEO transition comes about two years after he was hired as co-CEO and about three months after he was promoted to sole CEO of the company.
How UiPath could rebound
UiPath's growth rate has decelerated, but the business is retaining existing customers. The company reported a dollar-based net-retention rate of 118% in its fiscal Q1.
A recently expanded partnership with Microsoft will help maintain strong retention rates. UiPath is launching a new integration with Copilot for Microsoft 365.
PATH Free Cash Flow data by YCharts.
Over the past 12 months, UiPath lost $87 million according to generally accepted accounting principles (GAAP), but it's already generating positive cash flows.
UiPath generated $325 million of free cash flow over the past year. On the same yardstick, C3.ai is still reporting unsustainable losses.
A buy on the dip?
After falling about 36% over the past year, UiPath stock has been trading for around 20.5 times trailing free cash flow. This is a fair price to pay for a profitable software business that is still growing.
Long-term investors who buy UiPath at its beaten-down price could reap outsized gains even if its bottom line creeps forward at a high-single-digit percentage. With plenty of businesses still coming around to the idea of automating repetitive office tasks, there's plenty of room for this business to grow. Adding some UiPath shares to a diverse portfolio now and holding them over the long run looks like a smart move for most growth-seeking investors.
