The “Best” Robotic Process Automation (RPA) Stocks
“Robots are stealing our jobs,” you’ll hear people say. This blanket statement fails to capture the nuances of robotics and artificial intelligence (AI). If you take a shower after work, you’re probably going to be just fine. The two industries with the least amount of digitization right now are construction and agriculture. Ironically, both industries can’t find competent labor unless they import it from south of the border.
If you take a shower before work, you may be in for a world of hurt. Ideally, you’re the person in the office who automates themselves out of a job so you can climb to the next rung. Robotics process automation (RPA) is what white-collar workers should embrace, not fear. It’s what will allow them to “move on to more value-added activities.” That or you’ll just get canned, but in either case, you can probably hedge any future misfortune by investing in RPA stocks. The first thing we need to do is come up with a list of all publicly traded robotic process automation stocks.
A List of RPA Companies
In order to come up with a universe of RPA companies we should be watching, we can turn to those people whose entire job is to figure out which leaders are emerging. Here are the names to watch according to the MBAs over at Forrester:
And here are the leaders and challengers according to some other MBAs over at Gartner:
While these quadrants change over time, they do give us all the names we should be watching in the RPA space today.
Privately Held RPA Companies
We previously looked at 7 Startups Using AI for Robotic Process Automation and one of those was UiPath which is now publicly traded. The only other name to make an appearance today is Kryon. Here are the private RPA companies we should be watching (according to Gartner and Forrester) along with total funding if relevant:
- Automation Anywhere – A clear leader in the RPA space with $840 million in disclosed funding
- WorkFusion – Can eliminate up to 90% of back-office business work. They’ve taken in $341 million so far.
- Kryon – Raised $53 million to come up with the most convoluted “aaS” acronym yet – Full-Cycle Automation as a Service (FCAaaS).
- Cyclone Robotics – Chinese firm with $1.5 million in funding
- Kofax – subsidiary of Lexmark
- EdgeVerve – subsidiary of Infosys
- Hyland – large private company with 3,500 employees
Automation Anywhere is the only unicorn on the list with a current valuation of $6.8 billion according to CB Insight’s unicorn farm. Along with WorkFusion, these two companies seem most likely to pursue an IPO, hopefully not by using a special purpose acquisition company (SPAC). Until then, there’s not much to talk about, so let’s move on to the RPA stocks in the list.
Publicly Traded RPA Companies
Here’s a list of publicly traded companies we plucked from both lists – the leaders, the challengers, and the strong performers (we’re leaving out Microsoft because RPA is a small part of what they do and SAP for much the same reason.)
- UiPath (PATH)
- Blue Prism (PRSM.L)
- Pegasystems (PEGA)
- NICE (NICE)
- Datamatics (DATAMATICS.NS)
Let’s take a closer look at each of these five RPA stocks.
5 RPA Stocks
In last year’s article on The Best Robotic Process Automation Stock, we noted only two publicly traded RPA companies at the time – Blue Prism and Pegasystems. Let’s start with the latter.
We first wrote about Pega three years ago in a piece titled Pega – Using AI for CRM and Process Automation. At the time, we couldn’t really understand what the company does, and we still don’t today. Their website adds to the confusion as they ramble on about “crushing business complexity.” Perhaps the clearest picture of what they do can be found in their latest earnings deck:
It then proceeds to talk about “microjourney-centric delivery” and “situational layer cake,” both of which mean nothing to the average investor trying to understand what’s under the hood. There is no breakdown of revenues by segment except for their current focus on moving to recurring revenue from the cloud – the highly desired software-as-a–service (SaaS) business model which the market places a premium on.
The last time we looked at Pega, revenue growth appeared to be stalling. That’s not the case anymore, and they seem to have weathered the pandemic quite well.
Since we first looked at Pega three years ago, the stock has returned +95% compared to a Nasdaq return of +89% over the same time frame. It hasn’t been hyped, which is great if you’re looking to open a position. Here’s how Pega is valued compared to the other four RPA stocks we’re going to talk about next:
|Market Cap||Revenue Data||Annualized Revenues (billions)||Ratio|
Blue Prism (PRSM.L)
The only RPA stock we own right now is Blue Prism, a tech stock that’s traded in the U.K. and consequently doesn’t get the love it deserves. “American investors value subscription software companies more highly,” Blue Prism’s CEO told The Sunday Times, and his company is said to be exploring a listing in America. When the company announced their 2020 annual results, shares plummeted for reasons nobody can discern. Revenues seem to be plateauing in 2020, but everyone gets a pass last year because of The Rona.
U.K.-traded tech stocks get a bad rap, but if you’re a buyer, that shouldn’t dissuade you from opening a position. Would you rather wait until they trade in the U.S. and shares are more “appropriately valued?” One company that’s probably too appropriately valued is recent market entrant UiPath.
We featured UiPath last August in a piece titled “UiPath – From RPA to Hyperautomation,” and then again when they had their IPO several months ago in a piece titled UiPath is the Latest Robotic Process Automation Stock. We don’t have much to add to those research pieces, only to say that we believe UiPath shares are too richly valued right now. More on this in a bit.
The next stock on the list is an Israeli firm that’s been flying under our radar. NICE shares have been listed on the Tel Aviv Stock Exchange since 1991, and NICE ADRs have been listed in the U.S. on NASDAQ since 1996. The majority of the company’s revenues (81% in 2020) come from “Customer Engagement” or what’s now referred to as Contact Center as a Service (CCaaS). And apparently, they’re the leader to watch in this space:
The idea behind CCaaS is that companies can conduct call center operations using cloud software which allows them to utilize the latest and greatest technology on a pay-as-you-go plan which can be scaled based on changing demand.
Says Forrester, the NICE Process Automation Platform “focuses on voice- and text-analytics-related use cases,” a solution “dedicated but not limited to contact center automation.” Since over 80% of NICE’s revenues come from CCaaS, we would need to better understand that space prior to investing in the stock.
Last and also the least desirable of the RPA stocks we’ve looked at is Datamatics, a company that’s pretty much blacklisted from the start. That’s because their miniscule market cap of just $118 million places them way below our minimum market cap cutoff of a billion dollars. Yes, we do profile smaller companies, but there’s another red flag here. Datamatics only trades on Indian stock exchanges of which we don’t dabble in. We’re risk-averse investors, and consequently, we avoid getting involved with emerging market stock exchanges.
The Best RPA Stocks to Invest In
We can’t tell you what the best RPA stocks to invest in are because every investor has a different risk profile, a different existing portfolio, and a different way they’ll want to approach the problem. If your mandate is to invest in all RPA stocks, well there’s your five. If it’s to invest in one RPA stock, that’s a much more difficult decision.
All we can tell you is what we’ve invested in thus far. Back when we first wrote about RPA, there were two pure-play RPA stocks – Blue Prism and Pega. We’re passing on Pega today for the same reason we did back then. We don’t understand their business very well because they can’t properly articulate it. This is similar to Alteryx and their “analytics process automation” offering. Since we’re presently long Alteryx, we’re trying to avoid any other stocks out there we might not fully understand.
Of these five stocks, Blue Prism is the only one we’re holding, a position that happens to be the smallest in our entire tech stock portfolio. It also happens to be the one with the lowest cost basis. We’re presently (checks notes) down more than -30% on the position. Now is the time to double down or leave the table. (Nanalyze Premium annual subscribers will be the first to know what we decide to do here.) The advantages of holding Blue Prism are the diversification effects we’re getting – country, currency, and some protection against the ARK effect.
UiPath is just too richly valued with a valuation ratio of 68. What’s a fair valuation? That’s a good question, and something our research team has been looking into. Based on some back-of-the-napkin calculations we’ve been doing thus far, 40 could be the upper limit of what we’d be willing to pay for a company we really wanted to hold. (That’s an example, because we haven’t finalized this yet.) At a valuation ratio of 40, UiPath shares would be trading around the $47 range compared to the $79 a share they’re trading at today.
That leaves us with NICE and Datamatics, the latter which we won’t touch because they’re too small and they trade on an emerging market stock exchange. As for NICE, we’ve added this as a to-do for our research team to take a closer look at.
Going forward, we’ll look to keep this article updated based on new entrants, M&A activities, and the like. If something has changed and we haven’t caught on yet, drop us a note in the comments section below and one of our overworked MBAs will assure you we’re all over it.
RPA is just one segment of the fast-growing enterprise AI space. Nowadays investors need to take a more holistic look at how AI is being used to create value for large enterprises outside of just automating away white-collar jobs. The biggest selling point for RPA is that it cuts costs dramatically, something that becomes even more in vogue when there’s an economic downturn.
UiPath estimates that for every dollar a customer spends on their solution, they can return $15 or more in the first year. That’s an ROI just about any company can get behind, regardless of what the economy is doing.
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I think Blue Prism is a good value stock right now.
If you compare Blue Prism market cap 1.3B to revenue the ratio is 4.45 – that is extremely low value. Compare that to UIPath ratio
~50 . So UIPath is more than 10 times expensive based on that ratio.
Other thing: if Blue Prism is bought by UIPath or Microsoft it is likely to get at least 100% premium, so that would be instant gain for investors. So Blue Prism investment could work well in both cases: if Blue Prism contines on its own with a clear path to profitability (they aim to be cash positive in 2021) or in case they are taken over by one of its larger competitors.
The ratio we use is current market cap / annualized revenues. For Blue Prism, we’re using:
– Market cap = 898 million GBP
– Last quarter = 36.45 million GBP
– Annualized revenues = 36.45 * 4 = 145.8 million GBP
– Result = 898 / 145.8 = 6.16
Looks like we did that incorrectly above so we’ll change that now (we were converting to USD and missed a value). Thank you for catching that man!
As for Blue Prism getting acquired, that is pure speculation. Even more speculative is what price that transaction might take place at.
Thank you for pointing out their aim to be cash flow positive in 2021. That was supposed to be 2020, but The Rona came along.
Its financials got worse in the last couple of years. Net loss increased in 2019. That was due to increased investment.
However the financials improved in 2020 and the company aims to be cash flow positive in 2021.
Other thing: huge success of UIPath brought some uncertainty about Blue Prism future.
So Blue Prism is measured how it compares do UIPath.
Blue Prism managed to have 40% revenue growth in 2020. For comparison UIPath has revenue growth around 100%.
In the earlier years Blue Prism had higher revenue growth (2019: 76%, 2018: 124%)
We can see the trend: revenue growth is slowing. That coincides with a rapid growth of UIPath which keeps revenue growth at ~100%. I think Blue Prism recognized it cannot outcompete UIPath in terms of growth, but instead its focus is on improving financials and as a results getting better share price performance.
Blue Prism is considering listing in USA. The main reason is they are know they can get better valuation in that case.
So there are 2 catalysts that could give a significant share price boost: getting cash flow positive and listing in USA.
Every company gets a slowing revenue growth “get out of jail free card” for 2020 because of you know what. Blue prism quarterly revenues better start showing an uptake to restore faith. It’s hard to believe with all this blue ocean growth everyone’s talking about in RPA that Blue Prism suddenly hit a wall. Looking through that 2020 report, they sure have a lot of committees doing busy work. Maybe less corporate bureaucracy and more enterprise sales?
Evening Standard article – February 2021:
British AI pioneer Blue Prism may head to Wall Street because UK investors “don’t understand tech”
Chief says rivals in US are valued five times higher than UK
“It kind of says, the old rules apply: if you are a global operation, you go straight to the US.”
He acknowledged that the London market had helped Blue Prism build an industry for robotic process automation in the company’s early years.
“It played a role, but there are things for people to worry about in all this stuff. They need to think about London’s image. Structural questions just have to be faced up to.”
“Dollar for dollar comparisons between our valuation and our US [peers] show they are at 2-5 times multiples of us. Investors here just don’t understand us and it is a more thinly traded market. There’s a lack of understanding of tech businesses.”
For the company that says they coined the term “Robotic Process Automation,” they better start worrying about their image a bit more. Complaining to the press about unfair valuations isn’t going to make the U.S. listing happen any faster.
Great comments. Is it possible that the blue prism offering is inferior to that of ui path and automation anywhere?
@Manan Atit : I found web page where someone compares the software in more detail, but usually comments with links don’t get approved here, so not sure I can put it here.
Anyway: UIPath software seems to be much easier to use for someone new. UIPath offers free community version to download, it is easy to get the software for free for evaluating or learning.
Blue Prism software has some areas of strength and in general solutions with Blue Prism are considered more robust (it may take more work to implement but works quite well). Blue Prism has longer experience in RPA business.
That’s why I think it would make sense for UIPath to buy Blue Prism, especially considering the fact Blue Prism is tiny comparing to UIPath now.
@Manan and @Stan,
It’s tough to decipher this based on third-party reviews. Maybe if one had experience working with all these solutions they could provide an opinion, but there’s so much more to revenue growth than the “best” software solution (unfortunately). One metric to watch is retention. Blue Prism is upselling their existing customers and has a 98% retention rate as of their last yearly report so not many customers are leaving. Good questions.
Maybe the best resource we found for a third-party opinion on all these RPA companies is in the actual Gartner report that accompanies the magic quadrant we used in this piece. You’ll be able to pull that report up on Google and read through the details. They’ll give you the pros and cons of each solution (our past UiPAth piece looks at this detail).
27th May 2021
CANACCORD UPGRADES BLUE PRISM TO ‘SPECULATIVE BUY’ BUT SEES MEDIUM-TERM RISKS
Canaccord Genuity upgraded its view on shares of Blue Prism from ‘hold’ to ‘speculative buy’, telling clients the shares were undervalued, particularly taking into account the company’s prospects for fast sales growth.
According to the Canadian broker, trading on an enterprise value-to-sales multiple of 4.5, against the sector average of 5.5, the shares were “substantially” undervalued relative to its peers.
Furthermore, forecast sales growth was “materially above”.
Indeed, the firm’s customer base should allow it to grow its revenues at a double-digit compound annual rate of growth over the next few years, the Canadian broker said.
Yet the firm was not without its flaws, including its prioritisation of sales over profits, cash-consumptive operations and lower value-added software in comparison to other subsectors.
Looking out to the medium-term, there was also the potential risk lower-cost rivals entering the market, including Microsoft.
Its 1,250.0p target price for the shares was unchanged.
These “price targets” are all but useless, but the commentary seems insightful. We’re still mulling over our position and need to make some decisions. This one is tricky for any number of reasons.
Blue Prism provided on 17th May trading update. Revenue guidance for 2021 is lower end of the £170-180m.
If we take £170m, that will mean only 20% revenue growth. So clearly the trend with slowing revenue growth continues and that explains why the price fell to near 1Y low.
This is a good takeaway, thank you for sharing.
Look at Exela Technologies (XELA) It is a business process automation (BPA) company.
Recently the stock is on fire .. It rose from $1.3 to $3.76. Today +14% premarket ..
Where’s the revenue growth? Why would you waste your time messing with a miniscule company like this one when you could be spending that time monitoring the market leaders
Where can I find a Ticker Symbol for both Blue Prism and Automation Anywhere? Thanks earl guss. you guys ROCK…
Thanks for the compliment Earl! Blue Prism was acquired by a private equity firm and Automation Anywhere isn’t public. UiPath is a good firm to check out for sure.