UiPath’s Stock Keeps Climbing Days After IPO

UiPath (NYSE: PATH) made a splash with its IPO on Wednesday, launching on the New York Stock Exchange through a standard initial public offering rather than merging with a blank-check SPAC.

Right from the starting bell, shares were going for above-range prices and quickly piled on gains to rise more than 25% Wednesday. After a small downward correction, they jumped again Thursday, held fairly steady Friday and were up an additional 7% during trading today.

Will UiPath continue climbing from here, or will the exuberance fade? Let’s look a bit closer.

Why PATH Outperformed While Other IPOs Are Struggling

UiPath makes software that automates repetitive office paperwork, data entry, and the like. Known as “robotic process automation,” or RPA, the software observes and learns how to carry out office tasks that need to be regularly repeated, such as nurses filing paperwork at the end of a shift. Once it learns how to carry out these tasks, humans need to contribute very little — and sometimes nothing — to the job.

The reduction in paperwork is obviously attractive to companies, though an even more important facet of RPA is that it increases the productivity of trained personnel. With their administrative “busywork” reduced from potentially hours to minutes every week, these skilled employees can spend much more time engaging in their actual work.

These advantages may help explain UiPath’s success and the high share price it commanded on its first day of trading. When announcing its IPO back in late March, the company estimated its shares would sell initially for $43 to $50. Days before the IPO, the company nudged that figure up to a range of $52 to $54. On actually going public, the shares started trading at $56 and quickly rose to close the day at $75.50.

UIPath’s performance is notable because recent IPOs such as Deliveroo and AppLovin have struggled after their debuts. AppLovin fell 18.5% on its first day trading, while Deliveroo was called the “worst IPO in London history.” 

Where Does UiPath Stock Go From Here?

UiPath’s above-range IPO stock price and strong follow-on gains are probably due to a combination of the company’s own performance and broader gains in the software industry.

Here’s more detail about UiPath’s performance:

  • Year-over-year revenue jumped 81%, from $336.2 million in the fiscal year that ended Jan. 31, 2020, to $607.6 million in the fiscal year that ended Jan. 31, 2021.
  • It reduced its bottom line net loss from a $519.9 million loss in fiscal 2020 to a $92.4 million loss in fiscal 2021.
  • UiPath has turned both operating cash flow and free cash flow positive.
  • Its S-1 filing includes case studies showing that its software has saved a number of companies tens of millions of dollars apiece annually. It also describes a “large” state labor department using the RPA to detect $1 billion in fraudulent unemployment claims, along with processing 300,000 claims in a single weekend, equal to the normal number of claims filed in a year.

Should You Buy? Potential Risks of Investing in UiPath Now.

UiPath’s software isn’t without detractors, with some critics suggesting that it simply covers gaps in poor database design or workflow, and others questioning how scalable it is. However, the software does appear to be able to learn successfully, changing both itself and the workflow to greatly increase efficiency in fields that would previously have involved endless paper-pushing (or perhaps, in the modern era, pixel-pushing).

UiPath seems to have a solid business model and to be improving its business performance, but the fact that it’s still generating losses (even if those losses are rapidly shrinking) could be a cautionary sign. In addition, it’s unclear how large UiPath’s end market will be. While the company reports a total addressable market of $60 billion, Gartner projects the entire market for RPA will reach just $2 billion in 2021. Compare that figure to UiPath’s $38 billion market cap. 

For those interested in the stock, one strategy could be to wait for the possibility of the immediate post-IPO frenzy to cool and the shares to drop closer to UiPath’s originally forecast share value of $52 to $54 before buying. That could allow investors to tap into long-term growth and gains rather than the showy surge caused by its highly anticipated stock market launch.

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Rhian Hunt has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Millennial Money is part of The Motley Fool network. Millennial Money has a disclosure policy.

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