Unity Software Stock To $21?
Unity Software (U) stock has fallen 24% during the past day, and is currently trading at $29.10. Our multi-factor assessment suggests that it may be time to sell U stock. We have, overall, a pessimistic view of the stock, and a price of $21 may not be out of reach. We believe there is a near-equal mix of good and bad in Unity Software stock given its overall Moderate operating performance and financial condition. But keeping in mind its High valuation, we think that the stock is Unattractive.
Below is our assessment:
| CONCLUSION | |
|---|---|
| What you pay: | |
| Valuation | High |
| What you get: | |
| Growth | Inconsistent |
| Profitability | Very Weak |
| Financial Stability | Very Strong |
| Downturn Resilience | Moderate |
| Operating Performance | Moderate |
| Stock Opinion | Unattractive |
Instead of stock picking, it makes more sense to build a portfolio that is designed to win across cycles. Our numbers show that High Quality Portfolio has turned stock-picking uncertainty into market-beating consistency.
Let’s get into details of each of the assessed factors but before that, for quick background: With $12 Bil in market cap, Unity Software provides an interactive real-time 3D content platform with software solutions to create, run, and monetize interactive 2D and 3D experiences.
[1] Valuation Looks High
| U | S&P 500 | |
|---|---|---|
| Price-to-Sales Ratio | 6.9 | 3.3 |
| Price-to-Earnings Ratio | -28.7 | 24.2 |
| Price-to-Free Cash Flow Ratio | 32.0 | 21.2 |
This table highlights how U is valued vs broader market. For more details see: U Valuation Ratios
[2] Growth Is Inconsistent
- Unity Software has seen its top line grow at an average rate of 16.7% over the last 3 years
- Its revenues have fallen -8.2% from $2.0 Bil to $1.8 Bil in the last 12 months
- Also, its quarterly revenues grew 5.4% to $471 Mil in the most recent quarter from $447 Mil a year ago.
| U | S&P 500 | |
|---|---|---|
| 3-Year Average | 16.7% | 5.6% |
| Latest Twelve Months* | -8.2% | 6.2% |
| Most Recent Quarter (YoY)* | 5.4% | 7.3% |
This table highlights how U is growing vs broader market.
[3] Profitability Appears Very Weak
- U last 12 month operating income was $-496 Mil representing operating margin of -27.5%
- With cash flow margin of 22.9%, it generated nearly $414 Mil in operating cash flow over this period
- For the same period, U generated nearly $-436 Mil in net income, suggesting net margin of about -24.1%
| U | S&P 500 | |
|---|---|---|
| Current Operating Margin | -27.5% | 18.8% |
| Current OCF Margin | 22.9% | 20.5% |
| Current Net Income Margin | -24.1% | 13.1% |
This table highlights how U profitability vs broader market. For more details see: U Operating Income Comparison
[4] Financial Stability Looks Very Strong
- U Debt was $2.2 Bil at the end of the most recent quarter, while its current Market Cap is $12 Bil. This implies Debt-to-Equity Ratio of 17.9%
- U Cash (including cash equivalents) makes up $1.9 Bil of $6.8 Bil in total Assets. This yields a Cash-to-Assets Ratio of 28.0%
| U | S&P 500 | |
|---|---|---|
| Current Debt-to-Equity Ratio | 17.9% | 19.4% |
| Current Cash-to-Assets Ratio | 28.0% | 7.2% |
[5] Downturn Resilience Is Moderate
U 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.
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 $49.47 on 9 December 2025 , and currently trades at $29.10
| U | S&P 500 | |
|---|---|---|
| % Change from Pre-Recession Peak | -89.3% | -25.4% |
| Time to Full Recovery | Not Fully Recovered | 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 |
But the risk is not limited to major market crashes. Stocks fall even when markets are good – think events like earnings, business updates, outlook changes. Read U Dip Buyer Analyses to see how the stock has recovered from sharp dips in the past.
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.