It's been a rough first half for some investors. If you owned shares of UiPath (PATH +1.68%), Chegg (CHGG 1.85%), and Roku (ROKU +1.26%) since the start of 2024, you're in a world of hurt. The three stocks are down between 36% and 74% so far this year.
It doesn't have to stay that way. I think all three stocks have a chance to deliver meaningful gains in the final six months of 2024. They may not make back the ground they lost in the first half of this year, but even a modest bounce from these humble starting lines can beat the market. Let's take a closer look.
NYSE: PATH
Key Data Points
1. UiPath, Down 49%
It's hard to believe that UiPath has been roughly cut in half this year. As a leading provider of robotics, automation, and artificial intelligence software solutions, this should be a fertile stock in 2024. Between wage inflation driving labor expenses higher and companies trying to gain an operational edge, UiPath's tech platform for robotic process automation should be a dinner bell. So far this year, it's been a fire alarm.
UiPath's biggest hit came in late May following a poorly received quarterly report. Weak guidance and losing its second CEO this year weren't bullish events. Now it's time to see if the dramatic markdown here is ripe for a comeback story.
UiPath began the year with a pair of CEOs. Co-founder Daniel Dines, who was serving as co-CEO, stepped down in January. His fellow helmsman backed out at the end of May following the brutal financial update after just a couple of months as lone CEO. Dines agreed to return to the corner office.
Image source: Getty Images.
Growth has slowed at UiPath. The 16% revenue increase for its fiscal first quarter is about half the year-over-year jump it posted three months earlier. Its latest guidance suggests that the top line will continue to decelerate. The news isn't necessarily any better on the bottom line. UiPath remains profitable on an adjusted basis, but it's not expected to return to reported profitability until 2027.
Why should one be optimistic in the near term here? Well, despite the uninspiring guidance for the balance of 2024, analysts see revenue accelerating from 8% this fiscal year to 12% next year. It has a cash-rich balance sheet that shaves its current $7.3 billion market cap to an enterprise value of just $5.4 billion. It's going through some hiccups, but it still topped $100 million in adjusted free cash flow in its latest quarter, and it has found a way to exceed Wall Street's profit targets in each of the last four quarters. Dines is back, and what a great name to ring the dinner bell again.
NYSE: CHGG
Key Data Points
2. Chegg, Down 74%
The biggest sinker on this list is Chegg. The homework help specialist has been reeling since warning that ChatGPT is eating away at its business nearly 14 months ago. It was sputtering before it said the obvious. It has posted negative year-over-year revenue growth for eight consecutive quarters. However, those were single-digit top-line declines. Guidance calls for a slide of 12% to 13% in the current quarter.
Chegg knows the assignment. It's a study help pro, after all. The new CEO who took over last month was the chief operating officer who set the company on the track to embrace AI to avoid disruption well before the market knew there was a problem. Chegg also remains very profitable. It's trading for less than 3 times trailing and forward adjusted earnings. The multiple is still less than five if you prefer to go with enterprise value instead of market cap. The price-to-free-cash-flow multiple is even lower.
Chegg is a money tree, but it has mistakenly spent a lot of that greenery on buying back shares at much higher price points. It spent more than $300 million on repurchases last year alone, more than enough to swallow its entire remaining share count at today's deeply discounted prices. Last week it announced that it would be reducing its workforce by 23%, a move that will help shave costs as it puts more effort into leading the way in AI-fueled educational tools.
NASDAQ: ROKU
Key Data Points
3. Roku, Down 36%
Let's close with Roku. The popular TV streaming enabler is doing well on some fronts. Revenue and user counts are growing in the double digits, and engagement has never been stronger. However, a lack of profitability, near-term competitive concerns, and sluggish connected TV advertising growth are weighing on the niche pioneer.
Roku is volatile, and it has a knack for bouncing back after a sell-off. The stock isn't likely to return to its 2021 peak anytime soon, but the business is a lot larger and its reach much wider since then. If recent efforts to prioritize initiatives that will deliver strong early returns pay off, Roku will be more than just a four-letter word to investors who have been burned in 2024.
