Is Unity stock a buy right now?

Shares of Unity Software (NYSE: U) stock soared as much after the 3D-software platform company reported a big sales beat. Investors seemed especially happy with management's forecasts for the year ahead. But is that good enough to make Unity Software stock a buy?

Will Unity Software stock still go up?

Unity expects first-quarter revenue of $315 million to $320 million. For full-year 2022, the company expects revenue of $1.5 billion vs. analyst estimates for $1.43 billion. That would translate to year-over-year growth of 35%. Last year, Unity sales rose 44% to $1.11 billion. On the stock market of February 4, 2022, Unity stock advanced 17.4% to close at 108.66. It has fallen 24.4% in 2022 and has declined 16% over the past one year.

Wedbush analysts maintained their Outperform rating on Unity shares and a 12-month price target of $175.

Is Unity Stock Undervalued Right Now?

Its current market cap is $31.75 billion, giving it a price-to-sales ratio (P/S) of 26, or almost 10 times the market average. This means that investors’ expectations are extremely high right now. It is likely that Unity's stock is not currently undervalued, even though it is down 18% in the last month.

Should I buy Unity stock?

Unity is a platform that helps other companies and developers build and operate real-time 3D experiences. Its main business line is powering and monetizing video games, but it also serves the industrial, animation, architectural, and engineering industries. Today, more than half of the world's PC, console, and mobile games are built with Unity's game engine. A few recent examples of games made with Unity include Genshin Impact, League of Legends: Wild Rift, Pokémon Brilliant Diamond and Shining Pearl, and Kingdom Hearts: Melody of Memory. It also gradually expanded beyond its core gaming market with 2D and 3D applications for non-gaming markets.

Essentially, game studios pay to use Unity's services to get their games to the next level faster and with fewer employees. Developers can create an entire game once within Unity's engine, and it can seamlessly run across multiple gaming platforms. The Operate Solutions tools help game studios make money on their games. These include in-app purchases, advertising, and acquiring users.

Unity's revenue rose 42% in 2019, grew 43% in 2020, 44% in 2021, and is on track for 35% growth this year. If they can maintain an average annual growth rate of at least 30% from 2021 to 2027, its revenue could top $5.2 billion by the final year. Therefore, if you believe Unity will continue to grow faster than the global gaming market as it expands its add-on services and non-gaming tools, then it's time to buy this high-growth stock.

Is Unity Software a buy right now?

I'm not a huge fan of investing in companies that aren't earning profits. And in Unity's case, analysts polled by S&P Global Market Intelligence don't anticipate seeing Unity turn profitable before 2025, when the company is expected to earn $0.35 per share.