Shares of Unity Software (U 3.34%) stock soared as much as 18.5% on Friday after the 3D-software platform company reported a big sales beat -- $315.9 million for its fiscal fourth quarter of 2021, versus the $295.5 million that Wall Street had anticipated -- and a smaller than expected pro forma loss as well, of only $0.05 per share.
Investors were clearly elated by the size of the sales beat, and not one bit upset that Unity had lost money in the quarter. Indeed, when calculated according to generally accepted accounting principles (GAAP), Unity's loss for the fourth quarter was not $0.05 -- but $0.56 per share, or 81% more money than the company lost one year ago.
Image source: Getty Images.
They seemed especially happy with management's forecasts for the year ahead. Although it appears that actual profits may be too much to hope for, management is projecting 34% to 36% jumps in revenue both for the first quarter of 2022 currently underway, and for the whole year of 2022 -- $315 million to $320 million for the quarter, and $1.48 billion to $1.5 billion for the year. In both cases, these numbers are significantly higher than Wall Street projections, suggesting that Unity will follow up its Q4 sales beat with continued beats all year long.
But is that good enough to make Unity Software stock a buy?
I don't think it will surprise any Fool.com readers to learn that I'm not a huge fan of investing in companies that aren't earning profits. I'm especially leery of paying multiples such as 23.5 times forward sales (which is what Unity stock now costs) for an unprofitable operation. And in Unity's case, analysts polled by S&P Global Market Intelligence don't anticipate seeing Unity turn profitable before 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, that works out to a 315-times-earnings multiple, for earnings that are still three years distant. Suffice it to say, I'm very hesitant to call Unity stock a buy at current prices -- but today, it seems I'm in the minority.
