The Best Pure-Play Robotic Process Automation Stock

Global equities continue to defy explanation as stocks set new highs in the face of a pandemic that’s decimated entire sectors. Taking a bearish outlook seems like the sensible thing to do. Putting the pandemic and coming American elections aside, the irrationality on display is perhaps what’s most concerning.

Thirteen million investors now use Robinhood to trade stocks, many of whom don’t even know how bankruptcy works. Stories abound of absolutely moronic behavior, usually involving some hero-or-zero trade that at best equates to gambling. SPACs are being created left and right, many of which start soaring on nothing more than a press release of promises. Then there’s the “next Tesla” electric vehicle stocks, most with little more than a pile of cash and a dream. Increasingly, pundits are comparing today’s “bubble” to the Pets.com era.

Credit: Bloomberg

But it’s also easy to peddle a bullish “this time its different” thesis when you start to look at how much technology is disrupting nearly every industry. In our recent piece on hyperautomation, we talked about how robotic process automation (RPA) is replacing every repetitive task and manual process with a digital workforce. In one example, software robots from UiPath saved a professional services company $500 million a year. Assuming a 5% interest rate, the present value of those savings translates to $10 billion in value created. One could easily argue that robotics and machine learning are ushering in a new era of productivity, and that the bull market of all time is only beginning.

Whether you’re a bull or a bear, there’s everything to like about RPA technology. It’s the number one fastest-growing category of enterprise software which becomes an even stronger sell to the C-suite if a recession hits. Companies are always under pressure to increase earnings. If revenue growth slows, attention often turns to cost-cutting exercises. Consequently, it’s easy to see the appeal of investing in a robotic process automation stock. But which robotic process automation stock is – as newbie investors like to say – the best one?

The Best Robotic Process Automation Stock

Before we can figure out what robotic process automation stock is the best, we need to put together a list of all RPA stocks around the globe. In order to make life easier, we only want to include the leaders. The MBAs at Gartner have already done the heavy lifting by dividing all the notable RPA players out there into a quadrant which separates the wheat from the chaff.

X marks the spot – Credit: Gartner

Of the four names in the leadership quadrant, UiPath, WorkFusion, and Automation Anywhere are privately held. Blue Prism is the only publicly traded stock in the leaders list. Since we’re looking for a pure-play leader in RPA, Blue Prism seems to fit the bill.

What Gartner Thinks

When Gartner produces their “Magic Quadrants,” they also provide “strengths and cautions” for each company. We’ve gone through the report and paraphrased what they said about Blue Prism.

British firm with a focus on large enterprise customers in more than 170 countries. Offers an enterprise-wide RPA product with governance, tooling, and security.

Strengths

  • Breadth of product portfolio
  • An ecosystem of 200 partners
  • A strong vertical market strategy with 42 industry solutions

Cautions

  • Not easy to use and lacks some key functionality like a recorder
  • Expensive
  • Provides inadequate support for product upgrades

Blue Prism isn’t the only publicly traded RPA vendor. Another name on Gartner’s quadrant, Pega (PEGA), is a publicly traded pure-play RPA stock listed under “visionaries.” (According to Gartner’s quadrant, a visionary is less capable of executing than a leader – just like in real life.) Let’s take a look at how these two publicly traded RPA stocks compare when it comes to revenue growth.

Pega vs. Blue Prism

Putting Gartner’s ranking aside for a second, here’s a look at the revenue growth for Blue Prism and Pega side-by-side.

Credit: Yahoo Finance

Blue Prism shows strong revenue growth alongside growing losses. Pega shows revenues that appear to have flat-lined along with profitability except for 2019.

When we invest in disruptive technology companies, we expect them to be growing revenues at a rate that reflects the growth of the technology. If RPA is the fastest-growing enterprise software segment today, we want to invest in companies that are capturing that growth. Based on the above charts, that appears to be Blue Prism.

A fear years ago, we published a piece titled “Pega – Using AI for CRM and Process Automation,” in which we talked about how Pega dabbles in customer relationship management and something called “digital process management.” Here’s a look at a slide from that article.

Credit: Pega

That long trend of revenue growth appears to have stalled for Pega. In 2018, revenues only grew 0.35% and in 2019, only 2.22%. With growth having stalled for two years straight, we’re avoiding the company until revenue growth returns.

Buying Blue Prism Stock

We first looked at Blue Prism back in May 2018 and concluded that “You’d need balls the size of a tanuki to pull the trigger on some shares right now as they hover around an all-time high.” Since then, shares have ridden the roller coaster of volatility, and currently sit at almost the exact same price as they were two years ago.

Credit: Yahoo Finance

In the meantime, the Nasdaq returned +56% over the same time frame.

Several years ago, we concluded that Blue Prism’s stock price appreciation of over +1,000% in just several years presented too much risk. Here we are, 27 months later, and shares are at roughly the same price. As we put the finishing touches on our tech stock portfolio, Blue Prism is one of the names we’d like to hold, so we’re going to open a position.

We plan to purchase shares on the LSE which provides some incidental currency diversification because the position will be denominated in GBP. (There also appears to be an American Depository Receipt (ADR) on the Pink Sheet market, but we always prefer to own the real stuff.) While most brokerage firms in ‘Murica have dropped trading fees entirely, purchasing shares on foreign exchanges still incurs fees. Trading shares of Blue Prism on the London Stock Exchange (LSE) will cost 6 GBP per trade or about $7.85 USD. We plan to use dollar-cost-averaging, but need to take these fees into account as well.

More risk-averse investors may choose to hold shares in both Blue Prism and Pega in order to reduce company-specific risk.

Conclusion

Let’s summarize the thesis here. We’re bullish on RPA because it’s saving corporations billions of dollars, something that will be in even more demand during times of economic strife. We want to invest in a pure-play RPA stock which experts consider a leader in its space. We believe that Blue Prism is the better choice of the two publicly traded RPA stocks out there.

In a coming article, we’ll take a closer look at the key metrics Blue Prism investors should be watching to ensure the company is making the sort of progress you would expect leaders to make.

We’re bullish on RPA because it has a clear value proposition, saving customers thick wads of cash. That’s why Blue Prism is one of the holdings in our tech stock portfolio. For a complete list of disruptive tech stocks and ETFs we’re holding, download the “Nanalyze Disruptive Tech Portfolio Report,” now available for all Nanalyze Premium annual subscribers.

Leave a Reply

Your email address will not be published. Required fields are marked *

13 Shares
Tweet5
Share8
Share
Reddit
Buffer