Can I buy UiPath stock now?

Ui Pass‘S (road 1.57%) The stock plunged 34% on May 30 after the company released its latest earnings report. During the first quarter of fiscal 2025, which ended April 30, the automation software provider’s revenue rose 16% year over year to $335 million, beating analysts’ estimates by $2 million. Adjusted EPS rose $0.02 to $0.13, beating the consensus forecast by $0.01.

While those headline numbers looked good, UiPath lowered its full-year guidance and announced the sudden resignation of CEO Rob Enslin. The double whammy of bad news has seen the stock suffer its worst one-day decline since its public debut in 2021 and is currently trading nearly 80% below its IPO price. So should contrarian investors still buy this disgusting stock?

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Why is UiPath’s growth cooling?

UiPath is the world’s largest provider of robotic process automation (RPA) services. By connecting software robots to your company’s existing software infrastructure, you can automate repetitive tasks such as data entry, invoice processing, and customer onboarding. Revenues increased 81% in fiscal 2021 (ending January 2021) and 47% in fiscal 2022 as the pandemic forced more companies to cut costs, replace their workforce and accelerate digital transformation.

But in fiscal 2023, revenue grew only 19% as inflation, rising interest rates, geopolitical conflict and other macro headwinds forced many companies to curb spending on large-scale software upgrades. In fiscal 2024, sales increased 24% as the economic downturn ended and the macro environment gradually stabilized.

At the end of fiscal 2024, UiPath expected revenue to grow 19% in fiscal 2025. However, in the first quarter, this forecast was limited to only 7-8% growth. On a conference call, CFO Ashim Gupta said the decline was due to “increased deal scrutiny” for multi-year deals and “longer sales cycles.” We also reduced the midpoint of our full-year adjusted operating margin forecast from 19% to 10%, compared to an adjusted operating margin of 18% for fiscal 2024.

UiPath insists its problems are cyclical, but it faces stiff competition from cloud giants. microsoft (MSFT 0.11%) and sales (CRM 7.54%), both integrate RPA tools into their own software. UiPath’s decline in revenue also coincides with the explosive growth of its generative AI platform, which could potentially replace automation tools in the future.

CEO’s sudden resignation raises more red flags

Rob Enslin joined UiPath in 2022, initially sharing the co-CEO role with founder Daniel Dines. However, in February 2024, Dines stepped down from his position as co-CEO, transitioning to the role of chief innovation officer and handing the reins to Enslin.

That’s why Enslin’s departure was so shocking. He took over as CEO without Dines for less than four months and also stepped down from the board. No reason was given for his sudden resignation, and Dines was quickly reinstated as CEO.

On the conference call, Dines acknowledged that the company’s previous investments to reaccelerate revenue growth had backfired and “made us less responsive to customer needs and placed short-term pressure on operating margins.” Dines also said he “does not expect the macro environment to improve materially in the near term” and that a sudden leadership transition “could cause near-term disruption.”

On the positive side, Dines expects the generative AI platform to create a long-term tailwind rather than a headwind for the company. Like Enslin, Dines wants UiPath to upgrade its software robots with more generative AI tools to enable it to automate and analyze tasks more efficiently than traditional RPA services. But for now, we don’t know if UiPath is putting on a brave face or if it actually expects to benefit from the long-term expansion of the AI ​​market.

The price is not cheap to be considered a value play.

UiPath’s stock is trading at a significant discount compared to its IPO price, but at about four times this year’s sales, it can’t be considered cheap right now. I once thought UiPath was a promising company in the AI ​​market, but the steep guidance cut and sudden CEO change make it a difficult stock to recommend. In short, investors should stick to more reliable technology stocks unless UiPath management sets a clearer path for long-term growth.