This Growth Stock Could 10x in 10 Years

Everyone knows that a lot of stocks have fallen 80% or more. Many also realize that some of them won’t survive now that higher interest rates make it much more expensive to raise money. What few might expect is that a handful will ultimately live up to the lofty expectations investors held when the shares were at their peak.

UiPath (PATH 3.98%) has a shot at falling into that last category. It makes software that lets companies automate processes — commonly referred to as robotic process automation (RPA). Admittedly, its financials aren’t great. It is riding a fast-growing trend to address an enormous market. Add in well-known partners, and an investment today could produce life-changing returns over the next decade. But a lot has to go right.

Feeling the burn

UiPath went public last April at a valuation of nearly $36 billion. It was the the third largest for a software company ever. It was coming off of a fiscal year in which revenue grew more than 80%.  Since then, each quarter has seen growth decelerate. Year-over-year top-line growth was only 19% in its most recent quarter. 

That spurred a drop in share price of almost 85%. Cash from operations over the past 12 months is negative. That means UiPath is burning cash. And that doesn’t even factor in stock-based compensation. Adding that would erode another 30% of sales. 

PATH Stock Based Compensation (TTM) Chart

PATH Stock Based Compensation (TTM) data by YCharts

As bad as it all sounds, the company does have $1.45 billion of cash and equivalents on its balance sheet. At the current burn rate — the pace at which it is losing cash — it could survive for about six years without having to raise more money. So it has time to turn things around. It also trimmed its workforce in both June and November to better reflect the slower-growth environment. That should slow the burn rate even further.

The sky is the limit

In April, UiPath appointed a former executive from Alphabet‘s Google Cloud as the new co-CEO. Changes came fast and furious. In addition to the layoffs, it overhauled its go-to-market strategy by better segmenting customer groups, as well as by simplifying its pricing strategy and account management. 

The goal is to focus on customers with the most opportunity. The result — management and investors hope — will be the capture of a larger share of the RPA market. While its annual revenue just topped $1 billion, the total opportunity for current offerings tops $60 billion (shown in color below). The potential market (including segments in gray) adds up to more than $90 billion.

A chart showing the different market sizes for each service the company offers.

Image source: UiPath.

Turning the corner

UiPath has some help on the growth front. It is now partnered with Microsoft for enterprise automation. There are more than eighty standard automations available for businesses that run Microsoft’s applications from desktop computers all the way through the back office and cloud infrastructure. This partnership is similar to the one UiPath expanded with Accenture in late 2021 to bring automation to its consulting clients. That’s one of the largest technology companies in the world, as well as perhaps the largest technology consultancy.

To top it off, management reiterated its focus on profitability both on the latest earnings call and in a recent investor conference.  In fact, despite the cash burn illustrated above, the CFO guided to breakeven cash flow on the horizon and the expansion of positive free cash flow after that.

It was a tough year for UiPath shareholders. But the company made several difficult but necessary moves. Those moves and key partnerships bode well for future adoption by larger customers. And management’s comments should allay Wall Street fears about the lack of profitability. Altogether, UiPath is well positioned over the next decade in spite of current headwinds. Will growth reaccelerate? How fast will free cash flow grow? Those are the two most important questions for determining how much UiPath is worth. For now, I’m interested but waiting for answers.

Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Jason Hawthorne has positions in Accenture Plc, Alphabet, and Microsoft. The Motley Fool has positions in and recommends Accenture Plc, Alphabet, Microsoft, and UiPath. The Motley Fool recommends the following options: long January 2025 $290 calls on Accenture Plc and short January 2025 $310 calls on Accenture Plc. The Motley Fool has a disclosure policy.