Warren Buffett has written annual letters to Berkshire Hathaway shareholders for nearly six decades. Investors looking for a treasure trove of timeless financial advice should consider reading them. The following quote comes from the 1996 shareholder letter, but it remains perfectly relevant today.
"Your goal as an investor should simply be to purchase, at a rational price, a part interest in an easily understandable business whose earnings are virtually certain to be materially higher five, ten, and twenty years from now."
UiPath(NYSE: PATH) and Docebo(NASDAQ: DCBO) satisfy those conditions. They have compelling growth prospects, and their stocks trade at reasonable valuations. Additionally, shares of both companies are priced below $50, making them widely affordable.
1. UiPath
UiPath is the clear leader in robotic process automation (RPA), one of the fastest-growing software markets. Its platform lets users discover opportunities for automation with process mining tools and then build and manage software robots that automate those processes. Its platform also incorporates artificial intelligence (AI) capabilities, like natural language processing and machine learning, which support more advanced automations than RPA.
For instance, UiPath's Document Understanding product can extract, interpret, and take action on data from structured and unstructured documents, and its Communications Mining product extends the same functionality to conversational channels, like email and social media. Everest Group and the IDC have recognized UiPath as a leader in intelligent document processing, and management says its leadership position is "driving demand across our customer base."
UiPath reported reasonably good financial results in the first quarter of fiscal 2025 (ended April 2024), beating expectations on the top and bottom lines. Revenue rose 16% to $335 million, and non-GAAP (generally accepted accounting principles) net income increased 18% to $0.13 per diluted share. But management also said the challenging macroeconomic environment and inconsistent sales execution led to increased deal scrutiny and longer sales cycles during the quarter.
UiPath lowered its full-year guidance accordingly, such that revenue is now expected to increase less than 8% in fiscal 2025. But investors still have reason to be optimistic. Cofounder Daniel Dines has reassumed his role as CEO to improve go-to-market execution, especially with growth products like Document Understanding and Communications Mining.
UiPath also has a compelling pipeline of AI products. In June, the company debuted Autopilot for Developers, which lets users build automations and applications with natural language. The company also launched Autopilot for Testers, which lets quality assurance teams build tests and identify errors with natural language. Looking ahead, UiPath has a general-purpose Autopilot in the works, as well as Clipboard AI, a product that intelligently copies and pastes data between documents and applications.
Admittedly, UiPath's future is somewhat clouded at the present. Wall Street expects sales to grow at 11% annually through fiscal 2027 (ends January 2027), but that estimate seems overly pessimistic. The RPA market is forecasted to grow at 40% annually through 2030, and UiPath's AI product roadmap leaves room for additional upside. In that context, with shares trading at 5 times sales -- a discount to the two-year average of 8.3 times sales -- patient investors should feel comfortable buying a small position in this growth stock.
2. Docebo
Docebo specializes in corporate learning software. Its learning management system (LMS) helps businesses create, curate, deliver, and measure the impact of learning material across internal and external audiences, meaning employees and customers, respectively. Peer-review-based research company G2 recently ranked Docebo as the leader in the corporate LMS market.
Docebo has differentiated itself with two particularly innovative applications. First, Docebo Flow embeds training content into other software to foster a culture of continuous learning. Second, Docebo Shape uses generative AI to turn source content, like corporate case studies, documents, and presentations, into training materials. Importantly, Josh Baer at Morgan Stanley sees Docebo as one of the software companies best positioned to monetize generative AI.
Docebo reported strong first-quarter financial results. Revenue increased 24% to $51 million, and non-GAAP net income increased 140% to $0.24 per diluted share. But the company gave disappointing full-year guidance, citing macroeconomic uncertainty and the loss of a large customer. Revenue is expected to increase 18% in 2024, implying a deceleration in the coming quarters. That news caused Docebo stock to fall more than 20%, and shares have yet to recover.
However, there are three silver linings. First, the lost customer did not simply drop Docebo; rather, it was acquired by another company with its own in-house LMS. Second, Josh Baer at Morgan Stanley believes guidance is conservative, and he says the resultant sell-off has created a "compelling entry point" for investors. Third, temporary headwinds notwithstanding, Docebo remains well positioned to monetize generative AI.
Wall Street expects sales to grow at 17% annually through 2026, but that consensus estimate leaves room for upside because the overall LMS market is projected to increase 20% annually through 2030. Moreover, the current valuation of 6.5 times sales looks reasonable either way. Patient investors should feel comfortable buying a small position in this stock today.
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JPMorgan Chase is an advertising partner of The Ascent, a Motley Fool company. Trevor Jennewine has positions in UiPath. The Motley Fool has positions in and recommends Berkshire Hathaway, Docebo, JPMorgan Chase, and UiPath. The Motley Fool has a disclosure policy.
