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Ignore the hype & negativity! Why I think Blue Prism shares have further to go

Sometimes hype, fears that a company is overvalued, and a sense of cynicism can be the savvy investor’s friend, because sometimes such fears are overdone. The skill is in recognising when this is so. Take software automation company, Blue Prism (LSE:PRSM), for example.

Shares are up by almost 50% following the unveiling of its H1 results, valuing the company at £1bn. Revenue increased 82% to £81.6m, cash stands at £129m but EBITDA was minus £34m. 

The company provides robotics process automation (RPA). This is software technology for automating certain tasks, typically repeatable tasks, especially common in large process geared organisations such as insurance companies or banks.

RPA is currently one of the buzzwords within the technology sector and Blue Prism is one of the big three players in this space. Its two main rivals (UiPath and Automation Anywhere) are not yet listed on the stock market, have much higher valuations and have collectively raised over a billion dollars in funding. 

Grand View Research has predicted that the RPA market will be worth US$2.97bn by 2025 and will expand by 31% a year between now and then.

Despite this, the leading companies in this field have been subjected to fierce criticism. Critics say that the technology has been overhyped and doesn’t scale well. Others say it’s little more than a sticking plaster, a temporary solution to a problem that will in any case be solved once software tools improve. The criticism is unfair, the technology is still developing, although Blue Prism’s rivals do indeed enjoy extraordinary valuations.

The company got caught up in this negativity last year; consequently Blue Prism shares crashed in 2018  and, despite the recent rally, they are only a fraction over half the all-time high from that period.  Yet, specialist tech analysts are largely positive about Blue Prism, which has a specific niche within the RPA sector selling what are called unattended robots, which automate processes from end to end rather than specific tasks. 

The company is also quick to point out that the technology does not pose a threat to jobs, rather it automates those nasty, mind-numbing tasks that no one wants to do. 

Intriguingly, Blue Prism invented the phrase RPA, but today the market is evolving. The technology is becoming more sophisticated and companies like Blue Prism are putting less emphasis on this acronym, talking about intelligent automation instead. 

This burgeoning technology is making increasing use of artificial intelligence. I think that Blue Prism has a superb product, but which is not fully understood by the wider market and has become tarred with the same brush as its more hyped rivals. 

The reality is that the technology is going through growing pains and the message of its benefits has not yet filtered through to senior executives at companies whose support is needed before it’s scaled. Intelligent automation will become more important. When that happens, Blue Prism could be a big beneficiary.

As an alternative to buying shares in the company, investors may want to consider a robotics and automation ETF

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Michael Baxter has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.