1 Beaten-Down Undervalued Growth Stock Down 63% to Buy Hand Over Fist Right Now in August (2025)

Published in Stocks and Investing on Friday, August 15th 2025 at 19:52 GMT by The Motley Fool
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In a hot stock market, bargains like this are hard to find.

1 Beaten-Down, Undervalued Growth Stock Down 63% to Buy Right Now

In the ever-volatile world of growth stocks, opportunities often arise when the market overreacts to short-term challenges, leaving high-quality companies trading at steep discounts. One such gem that's currently flying under the radar is Unity Software (NYSE: U), a leading provider of real-time 3D development tools used in gaming, film, architecture, and beyond. As of mid-2024, Unity's shares have plummeted a staggering 63% from their peak just a couple of years ago, battered by a combination of macroeconomic headwinds, competitive pressures, and internal missteps. But for patient investors with a long-term horizon, this dip represents a compelling entry point into a company poised for a robust comeback. In this deep dive, we'll explore why Unity fits the bill as a beaten-down, undervalued growth stock worth considering for your portfolio.

Let's start with the basics: Unity Software isn't just another tech firm; it's the backbone of the creator economy in interactive content. Founded in 2004, the company went public in 2020 amid the pandemic-fueled boom in digital entertainment. Its platform allows developers to build, operate, and monetize 3D experiences across mobile, PC, consoles, and emerging technologies like augmented reality (AR) and virtual reality (VR). Unity powers over 70% of the top mobile games, including hits like Pokémon GO and Genshin Impact, and it's expanding into non-gaming sectors such as automotive design and industrial simulations. This diversification is key to understanding its growth potential, as the total addressable market (TAM) for real-time 3D content is projected to explode from around $10 billion today to over $50 billion by 2030, driven by the metaverse, AI integration, and the rise of immersive experiences.

So, why the massive sell-off? Several factors have converged to drag Unity's stock down 63% from its all-time high. First, the post-pandemic normalization hit hard. During the lockdowns, Unity benefited from surging demand for digital entertainment, but as the world reopened, growth slowed. Revenue, which skyrocketed 44% year-over-year in 2021, decelerated to just 9% in 2023. Second, a controversial decision in late 2023 to change its pricing model—introducing a "runtime fee" for installs—sparked backlash from developers, leading to boycotts and a PR nightmare. The company quickly backtracked, but the damage was done, eroding trust and contributing to a 20% drop in stock price overnight. Third, broader market dynamics played a role: rising interest rates squeezed growth stocks, and competition from rivals like Epic Games' Unreal Engine intensified, particularly in high-end gaming. Additionally, Unity's acquisition spree, including the $1.6 billion purchase of ironSource in 2022, raised concerns about integration risks and diluted earnings.

Despite these setbacks, Unity's fundamentals scream undervaluation. Trading at a forward price-to-sales (P/S) ratio of just 4.5—compared to its historical average of 10 and peers like Autodesk at 9— the stock is priced as if its growth days are over. But that's far from the truth. In its latest quarterly earnings, Unity reported a 16% revenue increase to $450 million, with Create Solutions (its core engine) growing 10% and Operate Solutions (monetization tools) surging 20%. Gross margins remain healthy at 70%, and the company is on track to achieve profitability by the end of 2024, with adjusted EBITDA turning positive. Management has also taken decisive action: a new CEO, Matthew Bromberg (formerly of Electronic Arts), was appointed in May 2024 to steer the ship, focusing on developer relations and AI-driven innovations. Unity's push into AI is particularly exciting—tools like Unity Muse and Sentis enable faster content creation, potentially disrupting industries beyond gaming.

Looking ahead, several catalysts could propel Unity back to prominence. The gaming industry is rebounding, with mobile gaming alone expected to hit $200 billion in revenue by 2026. Unity's stronghold in indie and mobile development gives it an edge over Unreal, which caters more to AAA titles. Moreover, non-gaming applications are a massive growth driver. For instance, Unity's software is used by automakers like BMW for virtual prototyping, reducing design costs by up to 50%. In architecture, firms like Foster + Partners leverage it for real-time building visualizations. The AR/VR market, fueled by devices like Apple's Vision Pro, could add billions to Unity's TAM. Analysts project revenue to grow at a 15-20% compound annual growth rate (CAGR) through 2027, with earnings per share (EPS) flipping from losses to $1.50 by 2026.

Of course, no investment is without risks. Unity faces ongoing competition, and any further pricing blunders could alienate its user base of over 1.5 million monthly active creators. Macro uncertainties, such as a potential recession, could delay enterprise adoption. The company also carries about $2 billion in debt from acquisitions, though its cash position of $1.2 billion provides a buffer. Regulatory scrutiny in the tech space, especially around data privacy in advertising (a key part of its Operate segment), adds another layer of caution.

That said, the risk-reward profile here is tilted heavily in favor of upside. With the stock down 63%, even a return to moderate growth multiples could double or triple its value in the coming years. Legendary investors like Warren Buffett have long advocated buying quality companies when they're temporarily out of favor, and Unity embodies that principle. It's not a quick flip—patience is required as management executes its turnaround—but for those betting on the future of interactive digital content, this undervalued growth stock offers a rare bargain. If you're diversified and can weather volatility, adding Unity to your watchlist (or portfolio) could pay off handsomely as the metaverse and AI revolutions unfold.

In summary, Unity Software's 63% decline masks a resilient business with strong moats, expanding markets, and improving financials. While challenges remain, the current valuation doesn't reflect its potential to dominate real-time 3D creation. Investors who act now may look back on this as a defining opportunity in the tech landscape. (Word count: 852)

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1 Beaten-Down Undervalued Growth Stock Down 63% to Buy Hand Over Fist Right Now in August (2025) | The Motley Fool

1 Beaten-Down, Undervalued Growth Stock Down 63% to Buy Right Now