UiPath Just Sank 17%. Is the Stock a Buy on the Dip?

Shares of UiPath (NYSE: PATH) sank despite the company reporting solid fiscal second-quarter results and raising its full-year guidance. The stock is now down on the year, as of this writing.

UiPath began as a robotic process automation (RPA) company that lets customers use software bots to perform repetitive, rule-based tasks; however, it has been in the middle of transforming itself in the age of artificial intelligence (AI). Its goal now is to be an orchestration platform that can combine AI with deterministic automation.

Let's dig into the company's quarterly results and prospects to see if this dip is a buying opportunity.

Moving in the right direction

UiPath said its platform that can orchestrate both AI agents and bots was beginning to resonate with customers as it can give them better returns on their investments and that its strong roots in governance and reliability were a competitive advantage. It also believes that being AI model agnostic is an important differentiator. Its AI momentum could be seen in the quarter with 18 of its 20 largest deals including an AI component.

The company has been working to strengthen its go-to-market strategy and said increased deal sizes and expanded customer engagement were evidence this was starting to pay off. However, it noted that customer education was still important, as it looks to bestow the benefits of how combining AI with deterministic automation can help enterprises. The company is also considering offering outcome-based pricing models to increase customer value and adoption. Finally, it continues to add prebuilt vertical and outcome-oriented solutions to help drive growth and be a gateway for its entire solution.

For its fiscal Q2, revenue rose 13% year over year to $410 million, cruising past guidance for revenue of between $395 to $400 million. Its annualized recurring revenue (ARR) rose by 12% year over year to $1.94 billion. Meanwhile, it added $37 million in new ARR in the quarter, up 19% year over year. UiPath's ARR is made up of its annualized invoiced amounts from subscription licenses and maintenance and support obligations, while it excludes invoiced amounts related to perpetual licenses or professional services. The metric is similar to bookings.

Dollar-based net retention came in at 109%, showing that the company is seeing solid growth within its existing customer base. It also had 97% gross retention.

UIPath ended the quarter with 10,350 customers, which was down from 10,550 at the end of Q1 as it continues to see attrition among smaller customers. Customers with $30,000 or more in ARR increased by 6% year over year, and customers with $100,000 or more in ARR increased 10%. Meanwhile, customers with $1 million or more in ARR jumped 21% to 387.

Adjusted earnings per share (EPS) was steady at $0.15. The company generated $31 million in operating cash flow and free cash flow. It ended the quarter with $1.41 billion in cash and marketable securities and no debt.

Looking ahead, UIPath forecast Q3 revenue in the range of $440 million to $445 million, representing growth of 8% at the midpoint. It guided for ARR between $1.992 billion and $1.997 billion.

For the full year, it raised its revenue guidance to a range of $1.789 billion to $1.794 billion from an earlier outlook of $1.776 billion to $1.781 billion. It now expects ARR of $2.065 billion to $2.070 billion versus between $2.058 billion and $2.063 billion previously.

Image source: The Motley Fool

Can the stock rebound?

UiPath continues to have a nice opportunity in front of it, and it appears to be seeing some green shoots from its efforts. However, for the stock to work, it does really need to see growth start to accelerate.

The stock remains relatively cheap, trading at a forward price-to-sales ratio of 4.4 times for a high gross margin, recurring business model. Take out its $1.4 billion in cash and marketable securities, and the stock trades at an enterprise-value -to-forward-sales ratio of just around 3.5.

Given its valuation, I think UiPath remains an interesting, speculative AI stock to own.

Geoffrey Seiler has positions in UiPath. The Motley Fool has positions in and recommends UiPath. The Motley Fool has a disclosure policy.