Shares of Unit software (NYSE:U) Shares soared as much as 18.5% on Friday after the 3D software platform company reported a big sales pace — $315.9 million for its fiscal fourth quarter of 2021, up from 295.5 million dollars that Wall Street had anticipated – and a smaller-than-expected formal loss as well, of just $0.05 per share.
Investors were clearly thrilled by the magnitude of the pace of sales, and not at all upset that Unity lost money in the quarter. Indeed, when calculated using generally accepted accounting principles (GAAP), Unity’s loss for the fourth quarter was not $0.05, but $0.56 per share, or 81% of more than the company’s loss a year ago.
They seemed particularly pleased with management’s forecast for the coming year. While it looks like actual earnings may be too much to look forward to, management expects revenue increases of 34% to 36% for both the current first quarter of 2022 and full year 2022 – 315 to $320 million for the quarter and $1.48 billion to $1.5 billion for the year. Either way, those numbers are significantly higher than Wall Street’s projections, suggesting that Unity will continue its fourth quarter sales pace with continued beatings throughout the year.
But is that enough to make Unity Software stock a buy?
I don’t think it will surprise Fool.com readers to learn that I’m not a big fan of investing in companies that aren’t making a profit. I am above all distrust of paying multiples such as 23.5 times forward sales (what Unity stock currently costs) for an unprofitable trade. And in the case of Unity, analysts polled by S&P Global Market Intelligence do not expect Unity to become profitable until 2025, when the company is expected to earn $0.35 per share.
Even assuming they’re right, and profitability is on the (distant) horizon for Unity Software, this equates to a multiple of 315 times earnings, for earnings that are still three years away. Suffice it to say, I’m very hesitant to call Unity stock a buy at current prices – but today it looks like I’m in the minority.
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Rich Smith has no position in any of the stocks mentioned. The Motley Fool owns and endorses Unity Software Inc. The Motley Fool has a Disclosure Policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.