Why Unity Software Stock Could Continue Tumbling

The stock is back within a chip shot of five-year lows

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Unity Software Inc (NYSE:U) is scheduled to release its first-quarter earnings after the close on Tuesday, May 10. Unity Software stock tends to do well after earnings, averaging a 10.1% next-day swing, regardless of direction, and settling higher after four of its last six post-earnings sessions.

The stock is down 5.8% at $74.74 as the broader tech sector sells off. It's lost a miserable 48% this year, and has shed 28% in the past 12 months. U is back within a chip shot of its March 14, five-year low of $73.12. The 80-day moving average rejected a rally attempt in early April, with additional pressure emerging at the 40-day moving average. 

Moreover, the software company reported $1.11 billion in revenues and $532.6 million in net losses for fiscal 2021, which was a 44% increase on the top line and a $250 million decrease on the bottom line compared to fiscal 2020. Unity Software has also increased revenues 192%, but their net income has decreased by more than $400 million since fiscal 2018.  

With al this said, with profitability still years away, the most important valuation metric for Unity Software stock is its price-sales ratio of 19.24, which indicates that U is still overvalued.


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