Unity Software Inc. (U) has been one of the most searched for stocks on Zacks.com lately. So you might want to take a look at some facts that could drive the stock’s near-term performance.
Shares of this company have returned -0.9% over the past month, compared to the Zacks S&P 500 composite’s change of -0.7%. The Zacks Internet Software industry, which includes Unity Software, is up 2.4% in the period. The most important question now is: where could the stock go in the short term?
Although press releases or rumors about a substantial change in a company’s business prospects typically make the stock “trending” and lead to an immediate price change, there are always some fundamental facts that ultimately dominate the buy-and-hold decision making.
Rather than focusing on anything else, we at Zacks prioritize evaluating the change in a company’s earnings projection. This is because we believe that the fair value of the shares is determined by the present value of the future income stream.
Essentially, we’re looking at how the sell-side analysts covering the stock are revising their earnings estimates to reflect the impact of the latest business trends. And when earnings expectations for a company rise, the fair value of its shares also rises. A higher fair value than the current market price stimulates investor interest in purchasing the stock, causing the price to rise. This is why empirical research shows a strong correlation between trends in earnings estimate revisions and near-term stock price movements.
For the current quarter, Unity Software is expected to post a loss of $0.35 per share, marking a change of -252.2% from the prior-year quarter. The Zacks Consensus Estimate remained unchanged over the past 30 days.
The consensus earnings estimate of -$1.71 for the current fiscal year indicates a year-over-year change of -517.1%. This estimate has remained unchanged over the past 30 days.
For the next fiscal year, the consensus earnings estimate of -$1.25 indicates a change of +27.3% from what Unity Software is expected to report a year ago. The estimate has remained unchanged over the past month.
With an impressive outside-audited track record, our proprietary stock rating tool – the Zacks Rank – is a more compelling indicator of a stock’s near-term price movement because it effectively harnesses the power of earnings estimate revisions. The magnitude of the recent consensus estimate change, along with three other factors related to earnings estimates, has resulted in a Zacks Rank #3 (Hold) for Unity Software.
The chart below shows the evolution of the company’s forward twelve-month consensus EPS estimate:
While a company’s earnings growth may be the best indicator of its financial health, not much will happen if it can’t grow its revenue. It is almost impossible for a company to grow its profits without growing its sales over long periods of time. That’s why it’s crucial to know a company’s potential revenue growth.
For Unity Software, the consensus current quarter revenue estimate of $431.91 million indicates a year-over-year change of -29.1%. For the current and next budget years, estimates of $1.79 billion and $1.8 billion indicate changes of -18.3% and +0.5%, respectively.
Unity Software reported revenue of $446.52 million in the last reported quarter, marking a year-over-year change of -18%. Earnings per share of -$0.31 for the same period, compared to $0.18 a year ago.
Compared to the Zacks Consensus Estimate of $428.01 million, reported revenues represent a surprise of +4.33%. The EPS surprise was +20.51%.
The company beat consensus EPS estimates in each of the trailing four quarters. The company exceeded consensus revenue estimates each time during this period.
Without taking into account the valuation of a stock, no investment decision can be efficient. When predicting the future price movement of a stock, it is crucial to determine whether the current price accurately reflects the intrinsic value of the underlying company and the company’s growth prospects.
Comparing the current value of a company’s valuation multiples, such as price-to-earnings ratio (P/E), price-to-sales (P/S), and price-to-cash flow (P/CF), with its own historical values helps determine whether the stock is fairly valued, overvalued or undervalued, while comparing the company to its peers based on these parameters gives a good idea of how fair the stock price is.
As part of the Zacks Style Scores system, the Zacks Value Style Score (which evaluates both traditional and unconventional valuation metrics) organizes stocks into five groups, ranging from A to F (A is better than B; B is better than C; and so on). ), making it useful in identifying whether a stock is overvalued, rightly valued, or temporarily undervalued.
Unity Software is rated F in this area, indicating that it trades more expensively than its peers. Click here to view the values of some of the valuation data that led to this figure.
The facts discussed here and much other information found on Zacks.com can help determine whether the market buzz surrounding Unity Software is worth paying attention to. However, its Zacks Rank #3 suggests it could perform in line with the broader market in the near term.
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Unity Software Inc. (U): Free stock analysis report
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