Unity Has A Lot of Potential. But the Stock Still Looks Overvalued

Unity Software (NYSE: U) has been one of the best-performing IPOs of 2020, with the stock up over 100% since its debut in September. As the backbone for much of the world's real-time 3D (RT3D) content (think mobile gaming, augmented reality, design tools, etc.), the company has a lot of potential for growth. However, with a market cap north of $42 billion and guidance for only $754 million in 2020 sales, shares of Unity look to be a bit inflated.

Here's what any prudent investor should be thinking about when evaluating the stock.

Last quarter, Unity's revenue grew 53% year over year to $200 million, and it's guiding for full-year sales growth of around 40%. It also had a dollar-based net expansion rate of 144%, which essentially means sales growth from existing customers was 44%. This shows how big of an opportunity creating/monetizing mobile gaming has become, and it is a big reason Unity now has 739 customers generating at least $100,000 in annual sales versus only 553 a year ago.

Source Fool.com