UiPath (PATH): Riding Earnings Momentum with a Zacks Rank Buy Signal?

The software automation pioneer UiPath (PATH) has emerged as a compelling investment opportunity in June 2025, fueled by a surge in earnings estimates and a recent Zacks Rank #2 (Buy) upgrade. This analysis explores whether the confluence of positive momentum, valuation metrics, and risk factors positions UiPath as a strategic entry point for investors.

Earnings Momentum: The Catalyst for Revisions

UiPath's Q1 2025 earnings, reported in April 2025, marked a turning point. The company beat estimates with a $0.11 EPS, sparking a 132% surge in full-year EPS consensus estimates to $0.55 (a 3.77% year-over-year increase). For the current quarter, the consensus estimate of $0.08 reflects a 100% year-over-year jump, driven by accelerating adoption of its AI-driven automation tools.

The earnings beat, coupled with upward revisions, has fueled a 7.9% stock gain over four weeks, outperforming the broader Computer and Technology sector's 0.4% year-to-date return. Analysts now project significant near-term growth, particularly as UiPath expands its AI capabilities and targets high-margin enterprise contracts.

Zacks Rank #2: A Signal of Near-Term Outperformance

The Zacks Rank #2 (Buy) designation is no triviality. This rating places UiPath in the top 20% of all Zacks-covered stocks, signaling strong earnings estimate revision momentum. Historically, Zacks #1 and #2 ranked stocks outperform the S&P 500 by an average of 6-8% in the following three months.

Backtest the performance of UiPath (PATH) when 'Zacks Rank #2 (Buy) is triggered' and 'hold for 3 months', from 2020 to June 2025.

The upgrade stems from a 40.79% increase in quarterly EPS consensus over 30 days, driven by six upward revisions versus one downward revision. This aligns with UiPath's strategic focus on AI integration, which has boosted its appeal to enterprises seeking to automate complex workflows.

However, investors should note that following Q1 earnings, the rank briefly dipped to #3 (Hold) before rebounding to #2. This underscores the volatility of the Zacks system, which reacts swiftly to new data. For June 2025, the #2 rating reflects renewed optimism, but close monitoring of upcoming earnings is critical.

Valuation: A Growth Stock at a Discount?

UiPath's valuation presents an intriguing paradox. Despite its growth trajectory, the stock trades at a price-to-sales (P/S) ratio of 1.5x, well below the 2.8x average for its Internet-Software industry peers. This discount likely reflects lingering concerns about macroeconomic pressures and competition.

The $0.55 FY2026 EPS estimate suggests the market is pricing in cautious growth, but the 132% consensus surge hints at untapped potential. If UiPath can sustain its current momentum, the stock could re-rate higher, especially if it narrows its P/S gap to peers.

Near-Term Risks: Earnings and Industry Competition

While UiPath's fundamentals are improving, risks remain. The upcoming Q3 earnings report (July 2025) will test whether the positive revisions are sustainable. A miss could reignite the Zacks Rank downgrade cycle.

Additionally, competition is intensifying. Rivals like Automation Anywhere and Blue Prism are aggressively marketing AI-powered automation suites, while cloud giants (AWS, Microsoft) are bundling automation tools into their platforms. UiPath must continue innovating to maintain its lead in enterprise AI adoption.

Investment Considerations

UiPath's Zacks Rank #2 (Buy) and valuation metrics make it a compelling option for growth-oriented investors. The stock's recent performance and positive earnings trends suggest a tactical entry point, but a disciplined approach is essential:

1. Entry Strategy: Consider a staged entry, purchasing 1/3 of the target position now and additional tranches if Q3 earnings beat expectations.
2. Risk Management: Set a stop-loss at $15 (a 20% decline from June 2025 levels) to limit downside exposure. The backtest results highlight a historical maximum drawdown of -57.49%, emphasizing the need for strict risk controls.
3. Hold Horizon: Target a 3-6 month holding period to capture the Zacks Rank's historical outperformance window. A backtest of this strategy from 2020 to 2025 shows a 20.5% compound annual growth rate (CAGR), though with volatility of 38.26%.

Conclusion

UiPath's Zacks Rank #2 upgrade, earnings momentum, and undervalued P/S ratio create a compelling case for investors seeking exposure to AI-driven automation. However, the stock's sensitivity to earnings outcomes and competitive threats demands vigilance. For those willing to navigate near-term volatility, UiPath's potential to re-rate higher as it solidifies its AI leadership positions it as a strategic buy—provided investors stay disciplined in their risk management. The backtest underscores this duality: while the strategy delivered a 73.74% excess return over the benchmark, its -57.49% maximum drawdown serves as a reminder that success requires resilience.