Unity Software Inc. (U) could be a solid choice for investors given the company's remarkably improving earnings outlook. While the stock has been a strong performer lately, this trend might continue since analysts are still raising their earnings estimates for the company.
The upward trend in estimate revisions for this company reflects growing optimism of analysts on its earnings prospects, which should get reflected in its stock price. After all, empirical research shows a strong correlation between trends in earnings estimate revisions and near-term stock price movements. This insight is at the core of our stock rating tool -- the Zacks Rank.
The five-grade Zacks Rank system, which ranges from a Zacks Rank #1 (Strong Buy) to a Zacks Rank #5 (Strong Sell), has an impressive externally-audited track record of outperformance, with Zacks #1 Ranked stocks generating an average annual return of +25% since 2008.
For Unity Software Inc., strong agreement among the covering analysts in revising earnings estimates upward has resulted in meaningful improvement in consensus estimates for the next quarter and full year.
The chart below shows the evolution of forward 12-month Zacks Consensus EPS estimate:
12 Month EPS
Current-Quarter Estimate Revisions
For the current quarter, the company is expected to earn $0.17 per share, which is a change of +154.8% from the year-ago reported number.
The Zacks Consensus Estimate for Unity Software has increased 95.2% over the last 30 days, as four estimates have gone higher while one has gone lower.
Current-Year Estimate Revisions
The company is expected to earn $0.78 per share for the full year, which represents a change of +146.4% from the prior-year number.
The revisions trend for the current year also appears quite promising for Unity Software, with five estimates moving higher over the past month compared to one negative revision. The consensus estimate has also received a boost over this time frame, increasing 96.79%.
Favorable Zacks Rank
The promising estimate revisions have helped Unity Software earn a Zacks Rank #2 (Buy). The Zacks Rank is a tried-and-tested rating tool that helps investors effectively harness the power of earnings estimate revisions and make the right investment decision.
You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here.
Our research shows that stocks with Zacks Rank #1 (Strong Buy) and 2 (Buy) significantly outperform the S&P 500.
Bottom Line
Unity Software shares have added 5.2% over the past four weeks, suggesting that investors are betting on its impressive estimate revisions. So, you may consider adding it to your portfolio right away to benefit from its earnings growth prospects.
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This article originally published on Zacks Investment Research (zacks.com).
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
