The ‘Best’ Robotic Process Automation (RPA) Stocks – Nanalyze

Robots are stealing our jobs, youll hear people say. This blanket statement fails to capture the nuances of robotics and automation. If you take a shower after work, youre probably going to be just fine. The two industries with the least amount of digitization right now are construction and agriculture. Ironically, both industries cant 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, youre 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. Its what will allow them to move on to more value-added activities. That or youll 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.

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.

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 is the only unicorn on the list with a current valuation of $6.8 billion according to CB Insights 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, theres not much to talk about, so lets move on to the RPA stocks in the list.

Heres a list of publicly traded companies we plucked from both lists the leaders, the challengers, and the strong performers (were leaving out Microsoft because RPA is a small part of what they do and SAP for much the same reason.)

Lets take a closer look at each of these five RPA stocks.

In last years article on The Best Robotic Process Automation Stock, we noted only two publicly traded RPA companies at the time Blue Prism and Pegasystems. Lets 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 couldnt really understand what the company does, and we still dont 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 whats 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-aservice (SaaS) business model which the market places a premium on.

The last time we looked at Pega, revenue growth appeared to be stalling. Thats 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 hasnt been hyped, which is great if youre looking to open a position. Heres how Pega is valued compared to the other four RPA stocks were going to talk about next:

The only RPA stock we own right now is Blue Prism, a tech stock thats traded in the U.K. and consequently doesnt get the love it deserves. American investors value subscription software companies more highly, Blue Prisms 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 youre a buyer, that shouldnt 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 thats 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 dont 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 thats 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 companys revenues (81% in 2020) come from Customer Engagement or whats now referred to as Contact Center as a Service (CCaaS). And apparently, theyre 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 NICEs 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 weve looked at is Datamatics, a company thats pretty much blacklisted from the start. Thats 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 theres another red flag here. Datamatics only trades on Indian stock exchanges of which we dont dabble in. Were risk-averse investors, and consequently, we avoid getting involved with emerging market stock exchanges.

We cant 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 theyll want to approach the problem. If your mandate is to invest in all RPA stocks, well theres your five. If its to invest in one RPA stock, thats a much more difficult decision.

All we can tell you is what weve invested in thus far. Back when we first wrote about RPA, there were two pure-play RPA stocks Blue Prism and Pega. Were passing on Pega today for the same reason we did back then. We dont understand their business very well because they cant properly articulate it. This is similar to Alteryx and their analytics process automation offering. Since were presently long Alteryx, were trying to avoid any other stocks out there we might not fully understand.

Of these five stocks, Blue Prism is the only one were 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. Were 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 were getting country, currency, and some protection against the ARK effect.

UiPath is just too richly valued with a valuation ratio of 68. Whats a fair valuation? Thats a good question, and something our research team has been looking into. Based on some back-of-the-napkin calculations weve been doing thus far, 40 could be the upper limit of what wed be willing to pay for a company we really wanted to hold. (Thats an example, because we havent finalized this yet.) At a valuation ratio of 40, UiPath shares would be trading around the $47 range compared to the $79 a share theyre trading at today.

That leaves us with NICE and Datamatics, the latter which we wont touch because theyre too small and they trade on an emerging market stock exchange. As for NICE, weve added this as a to-do for our research team to take a closer look at.

Going forward, well look to keep this article updated based on new entrants, M&A activities, and the like. If something has changed and we havent caught on yet, drop us a note in the comments section below and one of our overworked MBAs will assure you were 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 theres 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. Thats an ROI just about any company can get behind, regardless of what the economy is doing.

Tech investing is extremely risky. Minimize your risk withour stock research, investment tools, and portfolios, andfind out which tech stocks you should avoid. Become a Nanalyze Premium member and find out today!

Link:

The 'Best' Robotic Process Automation (RPA) Stocks - Nanalyze