Is Unity Software (U) Still Attractive After Its 88% One Year Share Price Surge

• If you are trying to figure out whether Unity Software's current share price still makes sense, you are not alone. This article focuses squarely on what you are paying versus what you might be getting.
• The stock closed at US$40.95 and has seen a 1 year return of 88.1%, even though the last 7 days, 30 days, and year to date show returns of an 8.3% decline, 6.5% decline, and 7.5% decline respectively.
• Recent attention on Unity has been driven by ongoing interest in its software platform and how it is positioned within the broader software and gaming ecosystem. This backdrop has kept valuation questions front of mind for investors who are weighing long term potential against recent volatility.
• Unity Software currently scores 2 out of 6 on our valuation checks. This suggests we need to look carefully at different valuation approaches to see what is priced in today. Later in the article we will also look at a fuller way of thinking about value that goes beyond any single model.

Unity Software scores just 2/6 on our valuation checks. See what other red flags we found in the full valuation breakdown.

Approach 1: Unity Software Discounted Cash Flow (DCF) Analysis

A Discounted Cash Flow model takes projections of a company’s future cash flows and discounts them back to today using a required rate of return, to estimate what the business might be worth right now.

For Unity Software, the model used is a 2 Stage Free Cash Flow to Equity approach. The latest twelve month Free Cash Flow sits at about $373.4 million. Analyst and extrapolated projections in this model have Free Cash Flow reaching $1.3b by 2030, with a series of annual forecasts between 2026 and 2035 that are first based on analyst estimates and then extended by Simply Wall St.

When all those future cash flows are discounted back to today in this DCF, the resulting estimated intrinsic value is US$56.65 per share. Compared to the recent share price of US$40.95, this implies an intrinsic discount of roughly 27.7%. This indicates that Unity is trading at a level below this model’s estimate of value.

Result: UNDERVALUED

Our Discounted Cash Flow (DCF) analysis suggests Unity Software is undervalued by 27.7%. Track this in your watchlist or portfolio, or discover 863 more undervalued stocks based on cash flows.

Head to the Valuation section of our Company Report for more details on how we arrive at this Fair Value for Unity Software.

Approach 2: Unity Software Price vs Sales

For companies where earnings are not yet a clear guide, the P/S ratio can be a useful way to think about what you are paying for each dollar of current revenue. It is often used for software names where profits are still being reinvested, while revenue provides a more consistent anchor for comparison.

What counts as a “normal” P/S depends on how investors view a company’s growth potential and risk. Higher expected growth and lower perceived risk usually support a higher multiple, while slower growth or higher uncertainty tend to pull that multiple down.

Unity Software currently trades on a P/S of 9.72x. This sits above the broader Software industry average of 4.71x and also above the peer group average of 8.89x. Simply Wall St’s Fair Ratio for Unity, which blends factors like growth, profit margins, industry, market cap and risk, stands at 8.69x. Because it is tailored to Unity’s specific profile, the Fair Ratio provides a more targeted reference point than a simple industry or peer comparison.

Comparing Unity’s actual P/S of 9.72x with the Fair Ratio of 8.69x suggests the shares are pricing in more than this framework would indicate.

Result: OVERVALUED

P/S ratios tell one story, but what if the real opportunity lies elsewhere? Discover 1445 companies where insiders are betting big on explosive growth.

Upgrade Your Decision Making: Choose your Unity Software Narrative

Earlier we mentioned that there is an even better way to understand valuation, so let us introduce you to Narratives, a simple tool on Simply Wall St’s Community page where you connect your view of Unity’s story to your own forecast for revenue, earnings and margins. This then produces a fair value you can compare against the current share price to help decide whether the gap looks attractive or stretched. Because these Narratives update automatically when new news or earnings arrive, you can see, for example, one investor framing Unity as a long term 2D or 3D and XR leader with a fair value of US$38.48. Another investor, focused on AI driven products and new partnerships, assigns a higher fair value of US$45.63. This gives you a clear, numbers based way to see how different perspectives translate into different estimates of what the stock might be worth.

For Unity Software however we will make it really easy for you with previews of two leading Unity Software Narratives:

🐂 Unity Software Bull Case

Fair value: US$45.63 per share

Implied pricing gap to this narrative: Unity trades at roughly 10.2% below this fair value

Revenue growth assumption: 13.16%

• Expects AI driven products like Unity Vector and Unity 6, along with subscription growth in the Create business, to support recurring revenue and margin improvement over time.
• Sees broader adoption across gaming and non gaming sectors and partnerships with companies such as Tencent, Scopely, Nintendo and BMW as a way to widen the revenue base.
• Flags risks around high investment in AI, competition from other engines and in house tools, data privacy rules, and reliance on large customers that could affect growth and profitability.

🐻 Unity Software Bear Case

Fair value: US$38.48 per share

Implied pricing gap to this narrative: Unity trades at roughly 6.4% above this fair value

Revenue growth assumption: 15%

• Highlights Unity’s role in 2D and 3D content creation for mobile, indie games and XR, while pointing out that analyst forecasts do not show meaningful growth until 2028.
• Notes that new management has been restructuring the business and reversing earlier decisions like the runtime fee, but that competition in gaming and advertising remains intense.
• Views the company’s diversified non gaming revenue and current cash position as supportive, while questioning whether the current share price already reflects these strengths.

Putting these side by side, you can see how different assumptions on growth, margins, and risk translate into quite different fair values around today’s US$40.95 share price. Narratives give you a way to line up your own expectations with the numbers so you are clear on what you think you are paying for.

Curious how numbers become stories that shape markets? Explore Community Narratives

Do you think there's more to the story for Unity Software? Head over to our Community to see what others are saying!

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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