U Fell 10% In A Week. What To Do Now?
Unity Software (U) stock is down 10.1% in 5 trading days. History of recovery post-dips is not on your side and there is fundamental risk – specific to growth and profitability. Consider the following data:
- Size: A $17 Bil company with $1.8 Bil in revenue currently trading at $40.04.
- Fundamentals: Last 12 month revenue growth of -13.7% and operating margin of -28.0%.
- Liquidity: Has Debt to Equity ratio of 0.13 and Cash to Assets ratio of 0.25
- Valuation: Currently trading at P/E multiple of -38.5 and P/EBIT multiple of -42.3
- Has returned (median) -10% within a year following sharp dips since 2010. See U Dip Buy Analysis.
While we like to buy dips if the fundamentals check out – for U, see Buy or Sell U Stock – we are wary of falling knives. Specifically, it is worth trying to answer if things get really bad, and U drops another 20-30% to $28 levels, will we be able to hold on to the stock? What is the worst case scenario? We call it downturn resilience.
Below is a deep dive into Unity Software (U) downturn resilience – specifically, its performance vs the market during past crises? Turns out, the stock saw an impact slightly better than the S&P 500 index during various economic downturns. We assess this based on both (a) how much the stock fell and, (b) how quickly it recovered.
Below are the details, but before that, as a quick background: U provides a real-time 3D content platform offering software to create, run, and monetize interactive 2D and 3D experiences.
2022 Inflation Shock
- U stock fell 89.3% from a high of $201.12 on 18 November 2021 to $21.50 on 9 November 2022 vs. a peak-to-trough decline of 25.4% for the S&P 500.
- The stock is yet to recover to its pre-Crisis high
- The highest the stock has reached since then is $48.50 on 19 July 2023 , and currently trades at $40.04
| U | S&P 500 | |
|---|---|---|
| % Change from Pre-Recession Peak | -89.3% | -25.4% |
| Time to Full Recovery | Not Fully Recovered days | 464 days |
2020 Covid Pandemic
- U stock fell 16.3% from a high of $119.00 on 6 November 2020 to $99.66 on 10 November 2020 vs. a peak-to-trough decline of 33.9% for the S&P 500.
- However, the stock fully recovered to its pre-Crisis peak by 20 November 2020
| U | S&P 500 | |
|---|---|---|
| % Change from Pre-Recession Peak | -16.3% | -33.9% |
| Time to Full Recovery | 10 days | 148 days |
Worried that Unity Software could fall much more? You could take a look at the Trefis High Quality (HQ) Portfolio, with a collection of 30 stocks, has a track record of comfortably outperforming its benchmark that includes all 3 – the S&P 500, S&P mid-cap, and Russell 2000 indices. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index; less of a roller-coaster ride, as evident in HQ Portfolio performance metrics.