Why Unity Stock Sank Today

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What happened

Unity Software (NYSE: U) stock ended Tuesday’s trading session down roughly 6.4%. With the U.S. recording a record number of confirmed coronavirus cases amid the spread of the omicron variant, investors are taking a more cautious stance on growth-dependent tech stocks.

The tech-heavy Nasdaq Composite index ended the session off 1.3%. While there wasn’t any company-specific news factoring into the pullback for Unity’s share price, it’s not surprising to see the growth stock lose substantial ground amid the backdrop of market volatility. 

© Getty Images A person wearing a virtual reality (VR) headset and reaching out toward a small, virtual block.

So what

Unity provides a development engine and other tools that can be used to create video games and other interactive content experiences. Strong business performance and a promising long-term demand outlook have helped the stock climb roughly 91% since market close on the day of its initial public offering (IPO) in September 2020, but shares have recently suffered a substantial sell-off due to concerns related to the pandemic, interest rate hikes, and other measures that the Federal Reserve will likely implement in 2022. 

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Now what

After the recent pullback, Unity stock trades down roughly 38% from the 52-week high that it hit in November. For investors looking to take advantage of the long-term growth of the video game and visual-content industries, Unity stock’s recent pullback could present a worthwhile entry point. Unity also stands out as a top pick for those looking to benefit from the growth of the metaverse. The company’s highly growth-dependent valuation sets the stage for volatile stock swings if investor appetite for risky tech plays continues to waver, but it also wouldn’t be surprising to see the stock bounce back and reach new heights.

Unity Software now has a market capitalization of roughly $37 billion and is valued at approximately 26 times this year’s expected sales.

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Keith Noonan has no position in any of the stocks mentioned. The Motley Fool owns and recommends Unity Software Inc. The Motley Fool has a disclosure policy.

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