Unity Software: A Very High Reward Opportunity (NYSE:U)

Introduction

Unity Software (NYSE: U) currently trades at a P/S ratio of 45, which is a fairly high valuation considering the company is not profitable and recent Q3 2020 company guidance projects disappointing revenue growth rates in Q4. Unity Software somewhat trades off of the long-term promise of future high returns from the possibility of the software world evolving into real-time 3D applications, but Unity also trades upon its relatively volatile revenue growth rates too.

On the positive side, investors have been excited by Unity’s excellent performance across 2020 which includes a relatively high dollar based net expansion rate of 144%, and most investors know these days that software companies with consistently high dollar based net expansion rates will often grow revenues faster than their counterparts and experience significant stock price appreciation. Unity has also shown very high and consistent non-GAAP gross profit margins of close to 80%, as well

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