UiPath stock: Breaking Out Amidst Shifting Sentiment

Key Points

• Shares of UiPath (PATH) have outperformed its sector, up over 100% year-to-date.
• PATH's short interest has surged to 9.28%, up by 3.62% MoM, while analysts set a $21.96 price target, anticipating a downside.
• PATH's recent breakout above resistance suggests the potential for further upside and a potential short squeeze.

The year is coming to a close in quite some fashion, with the technology sector fresh off of hitting new all-time highs. For the entire year, the technology sector has firmly led the way, with many of its key players and titans of industry vastly outperforming the overall market and sector. 

Year-to-date, the popular technology sector ETF, SPDR Select Sector Fund NYSE: XLK, is up a whopping 53%, while the Invesco QQQ ETF NASDAQ: QQQ, which tracks the Nasdaq-100 index, is up a staggering 52%.

With that exceptional outperformance and dominance on the year, it may be no surprise that many tech stocks continue to break out of their consolidations and experience impressive follow-through momentum to the upside. One stock looking to continue that theme and join in on the action is UiPath NYSE: PATH.

What is UiPath?

UiPath is a prominent NYC-based software firm specializing in robotic process automation (RPA). The company excels in automating repetitive tasks, enhancing business efficiency. UiPath has seen exponential revenue growth and reduced losses despite fluctuating market values post-IPO. Its focus on managing debt while expanding into AI, machine learning, and new sectors like healthcare defines its growth strategy. However, competition and regulatory pressures potentially challenge UiPath's continued success in the evolving RPA landscape.

The company has experienced a remarkable year, with its valuation more than doubling year-to-date, accompanied by a staggering 102% surge in its share price. Despite this meteoric rise, the initial bullish sentiment has shifted, giving way to a more bearish outlook. This change is marked by escalating short interest and analysts predicting a potential downside for the stock.

Sentiment has shifted to a more bearish outlook

Going forward, the heightened short interest in PATH could contribute to a continued increase in its share price. Presently, 9.28% of the float is sold short, reflecting a 3.62% increase from the previous month. While this percentage might seem modest, it's critical to note its significance: it translates to 38.8 million shares being sold short on a stock that typically trades an average of only 8 million shares. This substantial difference could raise concerns about potential market impacts and volatility.

Another bearish sentiment contributing factor is the consensus price target. Based on thirteen analyst ratings, the stock has a $21.96 price target, predicting over 14% downside. 

While it remains to be seen whether or not the bears and analysts will be correct with their positioning, analysis, and price targets, in the short term, the sustained high valuation of the stock might counter their sentiments and lead to unexpected upward momentum and potential volatility. 

The setup in PATH

Yesterday's breakout in PATH confirmed a significant development as the stock surged above its two-week resistance and closed beyond it. Going forward, monitoring whether the stock maintains this newfound position above the resistance level is pivotal. 

A bullish indication would be if PATH can effectively transform its previous resistance, near $25, into newfound support. Should this occur, it could signal further upward momentum, possibly prompting short sellers to start covering their positions.