The S&P 500(SNPINDEX: ^GSPC) has advanced 20% year to date due to strong interest in artificial intelligence and surprisingly robust economic growth. But certain Wall Street analysts believe UiPath(NYSE: PATH) and Roku(NASDAQ: ROKU) are undervalued.
- Sanjit Singh at Morgan Stanley has set UiPath with a bull-case price target of $40 per share by September 2025. That forecast implies 212% upside from its current share price of $12.80
- Nicholas Grous and Andrew Kim at Ark Invest have set Roku with a base-case price target of $605 by December 2026. That forecast implies 712% upside from its current share price of $74.50.
As a rule, investors should never put too much confidence in price targets, especially when they come from individual analysts. Nor should they take the implicit gains for granted. But UiPath and Roku warrant further consideration.
UiPath: 212% implied upside
UiPath specializes in robotic process automation (RPA), one of the fastest-growing software markets. Its business automation platform includes task and process mining tools that help users identify opportunities for automation, and development tools that help users build software robots capable of automating those tasks and processes.
Morgan Stanley says UiPath is the "clear category defining leader" in RPA, but analysts have acknowledged the company in other areas. For instance, the International Data Corp. recently recognized UiPath as a leader in intelligent document processing (IDP) software, which blends artificial intelligence and RPA to automate tasks like document classification, data extraction, and sentiment analysis.
UiPath reported mixed financial results in the second quarter of fiscal 2025 (ended July 31). The average customer spent 15% more and revenue increased 10% to $316 million. But non-GAAP gross margin contracted about 3 percentage points, and adjusted earnings fell 55% to $0.04 per diluted share. However, investors have reason to be cautiously optimistic.
UiPath brought co-founder Daniel Dines back as CEO in June to improve sales execution, especially where growth products like intelligent document processing are concerned, and to steer the company through an uncertain economy. Improvements will require time, but Dines said he was encouraged by the early progress in the second quarter. "I'm particularly excited about the success we've seen with our IDP solutions."
Going forward, Wall Street expects UiPath to grow sales at 10% annually through fiscal 2026 (ends April 2026). That estimate leaves room for upside because the RPA market is forecasted to grow at 40% annually through 2030. However, the current valuation of 5.2 times sales is reasonable even if the Wall Street consensus is correct.
Absent a significant acceleration in growth, UiPath shareholders have very little chance of triple-digit returns in the next year. But investors willing to hold the stock for three to five years at a minimum should consider buying a small position today. UiPath could be a rewarding turnaround story.
Roku: 712% implied upside
Roku's streaming platform connects consumers, content publisher, and advertisers. The company monetizes paid content by charging fees for transactions processed through Roku Pay, and it monetizes ad-supported content by selling inventory and ad tech software. Roku sources advertising inventory from content publishers on the platform, but it also operates an ad-supported service called The Roku Channel.
Roku is the most popular streaming platform in the U.S. as measured by streaming time, and the company is well positioned to maintain its leadership. Roku OS is the best-selling TV operating system in the U.S., Canada, and Mexico, which points to brand authority. Indee, in the second quarter, Roku OS was more popular than the next two operating systems combined in terms of TV unit sales.
Roku reported encouraging results in the second quarter. Active accounts increased 14% and streaming hours jumped 20%, which means the average account engaged with the platform more frequently. In turn, revenue rose 14% to $968 million and adjusted EBITDA improved to $44 million, up from a loss of $18 million in the prior year. Investors have good reason to think the company will maintain its momentum.
In addition to Roku being the most popular streaming platform in North America, The Roku Channel is the eighth-most popular streaming service in the U.S., outranking Max by Warner Bros. Discovery and Paramount+ by Paramount Global. That leaves the company well position to benefit as streaming accounts for more of TV viewing time and advertisers spend more on connected TV (CTV).
Wall Street expects Roku's revenue to compound at 13% annually through 2025, but that estimate leaves room for upside. CTV ad spending is projected to grow at 12% annually during the same period, and Roku's leadership in the North America (coupled with its expanding presence in international markets) could lead to faster-than-expected growth.
Having said that, the current valuation of 2.8 times sales is reasonable even if the Wall Street consensus is accurate. Personally, I think Ark's price target of $605 per share is absurdly high. But I also think Roku can beat the S&P 500 over the next three to five years. So, patient investors should feel comfortable buying a small position today.
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Trevor Jennewine has positions in Roku and UiPath. The Motley Fool has positions in and recommends Roku, UiPath, and Warner Bros. Discovery. The Motley Fool has a disclosure policy.
