We came across a short thesis on UiPath Inc (NYSE:PATH) on ValueInvestorsClub by dafreddy. In this article we will summarize the bears’ thesis on PATH. The company’s shares were trading at $11.85 when this thesis was published, vs. closing price of $13.28 on Jan 3rd.
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UiPath Inc (NYSE:PATH) provides an end-to-end cross-application enterprise automation platform that utilizes various technologies, including robotic process automation, application programming interfaces, and artificial intelligence, to automate a wide array of repetitive tasks across industries, such as claims processing, employee onboarding, invoice-to-cash workflows, loan applications, and customer service.
The bear thesis is based on the primary idea that the emergence of Gen-AI is a fundamental threat to providers of Robotic Process Automation (RPA) solutions. The author argues that UiPath Inc (NYSE:PATH) is getting squeezed out by major software players like ServiceNow and Salesforce which slowly incorporate AI and automation capabilities into their deeply integrated software platforms. These competitive pressures have been reflected in deteriorating sales efficiency metrics as well as significant cuts in FY2024 revenue growth guidance from +19% YoY growth to only +6% YoY growth after the 1Q 2024 earnings call. Furthermore, the author argues that new and emerging Gen-AI solutions and platforms represent a whole new class of competitors that will put new pressure on the legacy RPA tooling market. He believes that RPA technology is significantly limited by its rigidity, scope, and scalability issues if compared to the new Gen-AI capabilities, and hence many new entrants are expected in this space.
The aforementioned problems are further aggravated by a highly dilutive stock-based compensation structure of the company, which might be forced to further increase its R&D budget to survive and thus dilute its existing shareholder base even more. The author estimates that a ~1.7x FY2025E Revenue and ~61x FY2025E EBITDA multiple would yield a stock price under $7.00 per share, which implies a potential loss of at least 47% from the current market price.
While we acknowledge the potential of PATH as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than PATH but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article was originally published at Insider Monkey.