UiPath: Not Your Path To Profits (NYSE:PATH)

Investment Thesis

UiPath Inc. (NYSE:PATH) is priced at 41x this year’s non-GAAP operating profits. A figure that leaves investors with no upside potential.

More concretely, investors getting involved with UiPath right now, will have to navigate a challenging macro environment, while its stock’s valuation is doomed to see its premium compress.

All in all, this stock is a sell. Here’s why.

Rapid Recap

In my previous analysis, I described why I reversed my bullish stance on PATH,

I know from experience that there’s no point in compounding one poor investment decision, through sunken cost biases, with another poor investment decision.

In fact, I believe that the only way to outperform the market is by being upfront and recognizing one’s mistakes. Everyone makes investment bad decisions. But the amateur blames someone else, while the professional blames themselves and works to rectify and recoup their poor decision.

As it stands right now, including the premarket sell-off of 30%, PATH is being priced at 50x forward operating profits. A completely unjustified premium for what it offers investors.

As you can see above, I was previously bullish on PATH. But when I saw its fiscal Q1 2025 results, I recognized that being bullish on PATH was a mistake.

Consequently, rather than compounding my mistake, I believed that turning bearish was the right course of action. And now, given the recent developments in the market, I reiterate my sell call.

Recent Developments

UiPath creates software to help businesses automate repetitive tasks. This is a software business aimed at making enterprises more nimble and productive.

Think of it like a digital assistant that can handle routine work, such as data entry. UiPath’s software, often called a “robot” or “bot,” can do these mundane tasks quickly and accurately. This helps customers save time, reduce errors, and allow employees to focus on more important work.

Furthermore, investors had bought into the idea that there would be a secular growth trend for software companies. But as it turns out, software adoption is just as cyclical as other sectors, it’s just that investors had been willing to pay very high premiums on the assumption that growth “was guaranteed.”

Most software companies have yet to report their quarterly earnings. But the few that have, have echoed comments similar to those of Mathew Prince the CEO of Cloudflare, Inc. (NET):

[…] our crystal ball still shows that it’s challenging sledding for the overall IT environment over the quarters ahead.

And you can see this reflection in investors’ expectations across the board for IT software stocks

What you see, above, is that software stocks are decidedly out of favor with investors. And the reasons are that their growth rates are starting to peter out and moderate faster than investors had previously expected, a topic we delve into now.

Revenue Growth Rates Won’t Get Upwards Revised

The thesis for investors had been PATH was being conservative with its guidance, and that when fiscal Q2 2025 was reported at some point in September, it would upwards revise its full-year outlook.

But now, when UiPath reports its fiscal Q2 2025, I believe its guidance will probably point towards around 10% to 11% topline growth, and not much more.

And what will be particularly challenging for UiPath is that its comparables in the back half of the year are so high. And this reinforces my contention.

The best that UiPath has to offer for fiscal 2025, is now in the rearview mirror. Given this consideration, plus the doubts over its ability to reignite its revenue growth rates back to high teen growth rates, all of a sudden, this stock is unworthy of carrying such a high premium valuation.

PATH Stock Valuation – 41x Forward Non-GAAP Operating Profits

In the first instance, let’s discuss the bullish aspect facing investors. More than 15% of UiPath’s market cap is made up of cash and marketable securities and no debt. That is undeniably bullish and should support its valuation, up to a certain extent.

On the other hand, for this fiscal year, UiPath may deliver around $160 million of non-GAAP operating profits. This leaves the stock priced at 41x forward non-GAAP operating profits. A figure that is too generous for a company navigating such a tough environment, together with such questionable growth rates.

For the sake of comparison, consider that more established IT stocks, for example, ServiceNow, Inc. (NOW) are priced at about 35x forward operating profits, while growing at mid-20s% growth rates.

Altogether, UiPath’s valuation is too stretched for what it offers investors.

The Bottom Line

Paying 41x forward non-GAAP operating profits for UiPath Inc. (PATH) simply doesn’t make sense.

Given the challenging macro environment and the reality of its growth prospects, investors are likely to see this premium compress rather than expand. This stock’s valuation is unsustainable, especially when compared to more established IT stocks with better growth rates.

Therefore, it’s clear that investing in PATH at this price point is unwise. Investors should look elsewhere for opportunities, as this automation isn’t on the path to profits.