UiPath's (PATH) first-quarter report was a baffling affair. The reported results were within management's guidance ranges, but a top-end revenue reading was undermined by low-range profits and downright disappointing forward guidance. The business automation expert lowered its full-year revenue forecast by 10% and the operating profit projection by 51%.
Many analysts were quick to cut their price targets for UiPath's stock and the share price closed 34% lower the next day. But it wasn't a total retreat -- opportunistic investors like Ark Invest's Cathie Wood called it a buying opportunity and bought 2 million shares.
The conflicting data and investor reactions add up to one burning question. Should you buy or sell UiPath's stock right now?
Why UiPath's stock is falling
This isn't UiPath's first price-drop rodeo.
The stock is down by a total of 53% year-to-date and a heart-wrenching 83% since its market debut in the summer of 2021. The company built its services around artificial intelligence (AI), but the stock never caught the coattails of the generative AI boom in recent quarters.
Honestly, Wall Street's indifference to UiPath never made sense in my eyes.
The company is growing like gangbusters, showing a 16% year-over-year revenue jump and 18% higher earnings per share in the first quarter. The reduced full-year revenue guidance still points to roughly 8% revenue growth and 31% stronger operating profits.
And the stock wasn't even expensive heading into the first-quarter update. Today, UiPath trades at a very reasonable 21 times free cash flows and 5 times sales. I mean, these valuation ratios would be reasonable for a slow-growing value stock -- they're ridiculously low in light of UiPath's robust business growth.
Leadership changes can be painful
The numbers don't tell the whole story, of course.
Rob Enslin also announced his resignation from UiPath's CEO role in that earnings report, unexpectedly ending his top-title term after just three months. Founder and former CEO Daniel Dines is back in UiPath's corner office again. Enslin's departure was based on "personal reasons," and he remains in an advisory role to UiPath's executive team.
So it's a friendly separation, but it's never fun to see a CEO stepping out right after organizing his desk drawers. Executive turnover is rarely good news.
Moreover, UiPath bears found fresh fodder in the slowing top-line growth guidance. The company is seeking robotic automation deals with larger and more bureaucratic customers these days, resulting in longer negotiations for multi-year service deals. On the earnings call, Dines admitted that the sales staff's incentive programs probably inspired too many large-scale contracts. The company is retuning its sales strategy again, hoping to reaccelerate the slumping revenue growth trend.
Why Cathie Wood is right about UiPath's promising AI play
UiPath was Cathie Wood's favorite AI stock before the price drop, so it's not surprising to see her double down on that bet at a lower price point.
And I think Wood is doing the right thing. UiPath may not be the biggest name in AI operations, but it doesn't have to be. From a growth investor's perspective, I'm looking at a tempting combination of robust business gains and modest stock prices. The CEO drama isn't the end of the world, since Daniel Dines always had a firm hand on UiPath's long-term strategy rudder anyway. And did you notice that UiPath is firmly profitable, with a clear path to even richer bottom-line results?
PATH Revenue (Annual) data by YCharts
Cathie Wood is taking advantage of a proper fire sale here. UiPath has a lot of growth left to do, and the stock price doesn't seem to account for any of the resulting long-term gains.
Long story short, UiPath looks like a strong buy right now.
