UiPath (NYSE:PATH) Doesn't Need to Worry About the Negative Market Sentiment Yet

UiPath(NYSE: PATH) made a promising public trading debut early this year, but after rising 30% at one point, the stock is now down 25% YTD. It seems that, despite the growing revenues, the market remains concerned by the possible dilution and insider selling due to high stock-based compensation.

See our latest analysis for UiPath.

Q3 Earnings Results

• Non-GAAP EPS: US$0.00 (beat by US$0.04)
• GAAP EPS: -US$0.23 (miss by US$0.11)
• Revenue: US$220.82M (beat by US$11.59m)

Other Highlights

• Annual recurring revenue (ARR) increased 58% Y/Y to US$818m
• Non-GAAP gross margin at 85%
• Cash and cash equivalents: US$1.9b as of October 31
• For Q4, the company sees ARR in the range of US$901m to 903M, with non-GAAP operating income at US$10m-20m.

Meanwhile, Morgan Stanley took a contrarian position, upgrading the stock to Overweight, with a price target of US$74. Despite the growing competition, their analyst Keith Weiss believes that UiPath's strong positioning for a broader Enterprise Automation platform presents a valuable long-term opportunity.

While the robotic process automation (RPA) market is currently worth around US$2b, Mr.Weiss believes it could reach as much as US$56b.

Given this risk, we thought we'd look at whether UiPath shareholders should be worried about its cash burn. For this article, cash burn is the annual rate at which an unprofitable company spends cash to fund its growth; its negative free cash flow.

How Long Is UiPath's Cash Runway?

A company's cash runway is calculated by dividing its cash hoard by its cash burn. As of October 2021, UiPath had cash of US$1.9b and no debt.

In the last year, its cash burn was US$5.4m. That means it had no problem with the cash runaway. While this is only one measure of its cash burn situation, it certainly gives us the impression that holders have nothing to worry about.

The image below shows how its cash balance has changed over the last few years.

How Well Is UiPath Growing?

Given our focus on UiPath's cash burn, we're delighted to see that it reduced its cash burn by 97%. And it is also great to see that the revenue is up 119% in the same time period. Considering these factors, we're fairly impressed by its growth trajectory.

While the past is always worth studying, it is the future that matters most. For that reason, it makes a lot of sense to take a look at our analyst forecasts for the company.

How Hard Would It Be For UiPath To Raise More Cash For Growth?

There's no doubt UiPath seems to be in a fairly good position when it comes to managing its cash burn, but even if it's only hypothetical, it's always worth asking how easily it could raise more money to fund growth. Companies can raise capital through either debt or equity.

Since it has a market capitalization of US$25b, UiPath's US$5.4m in cash burn equates to about 0.02% of its market value. That means it could easily issue a few shares to fund more growth and might well be in a position to borrow cheaply.

Is UiPath's Cash Burn A Worry?

It may already be apparent to you that we're relatively comfortable with the way UiPath is burning through its cash. For example, we think its cash burn reduction suggests that the company is on a good path. And even its cash burn relative to its market cap was very encouraging.

However, there is one thing to consider. Given the high stock-based compensation, the company may prefer issuing new shares (dilution) over debt - if there is a need to raise the money in the near future.

After considering a range of factors, we're pretty relaxed about its cash burn since the company seems to be in a good position to continue to fund its growth. Taking an in-depth view of risks, we've identified 2 warning signs for UiPath that you should be aware of before investing.

Of course, you might find a fantastic investment by looking elsewhere. So take a peek at this free list of companies insiders are buying, and this list of stocks growth stocks (according to analyst forecasts)

What are the risks and opportunities for UiPath?

NYSE:PATH

UiPath

UiPath Inc. provides an end-to-end automation platform that offers a range of robotic process automation (RPA) solutions primarily in the United States, Romania, and Japan.Show more

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Rewards

• Revenue is forecast to grow 16.34% per year

• Earnings have grown 4.7% per year over the past 5 years

Risks

• Shareholders have been diluted in the past year

• Significant insider selling over the past 3 months

• Currently unprofitable and not forecast to become profitable over the next 3 years

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Simply Wall St analyst Stjepan Kalinic and Simply Wall St have no position in any of the companies mentioned. This article is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.