Although UiPath (currently trading at $13.59 per share) has gained 5.4% over the last six months, it has trailed the S&P 500’s 11.7% return during that period. This may have investors wondering how to approach the situation.
Is now the time to buy UiPath, or should you be careful about including it in your portfolio? Check out our in-depth research report to see what our analysts have to say, it’s free.
Why Is UiPath Not Exciting?
We’re cautious about UiPath. Here are three reasons we avoid PATH, plus one stock we’d rather own.
1. Lackluster Revenue Growth
Long-term growth is the most important, but within software, a stretched historical view may miss new innovations or demand cycles. UiPath’s recent performance shows its demand has slowed as its annualized revenue growth of 11.2% over the last two years was below its five-year trend. We’re wary when companies in the sector see decelerations in revenue growth, as it could signal changing consumer tastes aided by low switching costs. 
2. Weak Billings Point to Soft Demand
Billings is a non-GAAP metric that is often called “cash revenue” because it shows how much money the company has collected from customers in a certain period. This is different from revenue, which must be recognized in pieces over the length of a contract.
UiPath’s billings came in at $369.3 million in Q1, and over the last four quarters, its year-on-year growth averaged 9.3%. This performance was underwhelming and suggests that increasing competition is causing challenges in acquiring/retaining customers. 
3. Projected Revenue Growth Is Slim
Forecasted revenues by Wall Street analysts signal a company’s potential. Predictions may not always be accurate, but accelerating growth typically boosts valuation multiples and stock prices while slowing growth does the opposite.
Over the next 12 months, sell-side analysts expect UiPath’s revenue to rise by 8.2%, a slight deceleration versus its 19.7% annualized growth for the past five years. This projection doesn’t excite us and indicates its products and services will see some demand headwinds.
Final Judgment
UiPath isn’t a terrible business, but it isn’t one of our picks. With its shares lagging the market recently, the stock trades at 4.1× forward price-to-sales (or $13.59 per share). While this valuation is fair, the upside isn’t great compared to the potential downside. We’re fairly confident there are better stocks to buy right now. Let us point you toward the Amazon and PayPal of Latin America.
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