What Happened:
Shares of automation software company UiPath (NYSE:PATH) jumped 5.7% in the afternoon session as yields fell after the U.S. Treasury Department lowered the borrowing estimate for the first quarter of 2024. According to a press release, the Treasury Department is expected to borrow $760 billion, $55 billion lower than the $815 billion estimate provided in October 2023, due to "projections of higher net fiscal flows and a higher beginning of quarter cash balance."
Stocks have trended higher since late 2023 as market participants anticipated that the Fed would begin to cut rates in 2024, after recent economic data showed that inflation is cooling off. The first policy decision will be announced on January 31, 2024, with the consensus expectation for rates to remain steady at 5.25%-5.5%.
As a reminder, the driver of a stock's value is the sum of its future cash flows discounted back to today. With lower interest rates, investors can apply higher valuations to their stocks. No wonder so many in the investment community are optimistic about 2024. We at StockStory remain cautious, as following the crowd can lead to adverse outcomes. During times like this, it's best to own high-quality, cash-flowing companies that can weather the ups and downs of the market.
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What is the market telling us:
UiPath's shares are very volatile and over the last year have had 34 moves greater than 5%. In context of that, today's move is indicating the market considers this news meaningful but not something that would fundamentally change its perception of the business.
The biggest move we wrote about over the last year was 5 months ago, when the stock gained 7.2% on the news that the company reported second quarter results with ARR (annual recurring revenue) roughly in line with estimates and revenue narrowly exceeding analysts' expectations. However, non-GAAP operating profit beat by a large magnitude, showing that expense leverage came in strong. We were also glad that its full-year guidance was raised across the board and came in higher than Wall Street's estimates, especially on non-GAAP operating profit. Overall, it was a solid quarter, showing that the company is staying on track.
As a reminder, the company has been going through a repositioning of its go-to-market strategy, and these results, especially the $1+ million customer net adds, show that there is strong progress being made. Lastly, the company announced a $500 million stock repurchase authorization. These tend to be positives, reserved for companies that are generating excess free cash flow and looking to return some to shareholders.
UiPath is up 1.7% since the beginning of the year, and at $24.23 per share it is trading close to its 52-week high of $26.26 from December 2023. Investors who bought $1,000 worth of UiPath's shares at the IPO in April 2021 would now be looking at an investment worth $350.87.
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