Unity Software . NYSE:U stock has been battered over the last three months. Since it notched its all-time high of $ in November , it has dropped an astonishing %. Even a better-than-expected earnings card in FQ couldn t stop the rot we discussed it in a previous article. The stock has also declined to a critical support level it last visited in May . It was also the level that saw the stock stage a robust reversal as it raced towards its November highs.

Therefore, we are back there again. And, we think investors who have been biding their time patiently can take the opportunity to add more exposure.

We can observe from the above chart and determine that Unity stock is highly volatile. It also doesn t have a discernible long-term uptrend bias and has significant mean-reversion tendencies. It also means that we can find the right opportunities to capitalize on potentially oversold or bear trap price action to add exposure.

Notably, the stock has fallen near to its May lows. The recent Russia-Ukraine conflict, coupled with the tech bear market, has driven fearful investors to bail out of Unity stock. However, despite its steep value compression, U stock is still trading well above the median valuation of its high-growth SaaS peers x. Furthermore, the company has not been calibrated for FCF profitability. As a result, we were not surprised that investors took the opportunity to rotate out to lower multiple stocks with proven FCF margins.

Nevertheless, Unity has continued to post robust topline growth over the past year. Investors should be reminded that Unity notched a .% YoY revenue growth in FQ. It also capped a remarkable quarter to end a highly consistent FY, where its revenue increased by .% YoY.

Consequently, its NTM revenue multiple has continued to improve compared to May s metrics. Even though its price is still above its May lows, its NTM revenue multiple has improved to .x May lows: .x.

Hence, investors are getting an even better deal now for Unity than investors who added at its May bottom.

Unity investors should be assuaged to know that the consensus estimates over its revenue growth have moved higher since our last update. Notably, the company is expected to deliver revenue growth above % in FY. In addition, its adjusted EBIT margin is also estimated to improve to -.%. However, some investors may point out that it seems like its topline growth could decelerate moving forward.

We don t see anything unusual. We believe a +% growth rate is highly respectable. Furthermore, Unity has a clear line of sight in attaining adjusted EBIT profitability.

Moreover, it s critical to note that Unity telegraphed revenue growth of -% for FY in its initial guidance. Thus, U management has outperformed markedly. The company highlighted previously that it was concerned with the impact of Apple s AAPL IDFA changes. Therefore, it needed to be more prudent with its guidance. But, the company s monetization platform has proven to be much more resilient than we expected. Therefore, it managed to deliver results far ahead of what it has guided.

In addition, Unity has continued introducing more analytical capabilities to help its developers monetize better. Recently, it also launched two features, Funnels and SQL Data Explorer. With Funnels, developers can easily visualize the user flow and progression through their game. Unity s developer customers also use it to optimize the player experience, like onboarding or conversion from non-payer to payer. Unity also see it used as a way to diagnose an issue like level difficulty or player churn. Given Unity s massive reach across B devices, we believe its data analytics and scale will continue to offer developers a critical edge in their monetization strategies.

In addition, the company s SQL Data Explorer also further enhanced its developers data mining capabilities. Unity emphasized edited:

SQL Data Explorer is a rebuild of SQL Data Mining from deltaDNA in Analytics. This feature allows you to build and execute queries, plot results into different types of visualizations, and export your data to programs like Microsoft Excel, Tableau, or OpenOffice. It delivers the power and flexibility you need to more deeply understand your gameplay, combine your data with other important data sets, and create custom views for your studio. Better yet, you ll be able to access the beta for free and later pay as you scale. Unity

Therefore, Unity has demonstrated that it can continue to create a win-win scenario for the company and its developers. In addition, we believe that Unity would continue to develop new monetization opportunities, leveraging the scale of its platform. Therefore, we are confident that Unity is still very early in penetrating its massive $B TAM opportunity.

We believe that U stock has dropped right back into its optimal buy zone. As explained earlier, its valuation is even more attractive than in May . Furthermore, it s also trading below our fair value estimates.

In addition, it s also trading well below its average consensus price targets PTs, with an implied upside of %. Notably, it s also trading below the most conservative PTs.

Therefore, we think there are sufficient confluences for us to firmly believe that U stock s sell-off is overdone. Of course, the stock may continue to experience near-term volatility. But, we think the opportunity for long-term investors to add exposure seems appropriate.