Jim Cramer Says Unity Software Inc (U) is a ‘Falling Knife’; Recommends Investors to Stay Away

Attiya Zainib

1 July 2024 at 9:42 am·4-min read

We recently published a list of the 10 Stocks to Buy and Sell Before the Third Quarter 2024 According to Jim Cramer. Since Unity Software Inc (NYSE:U) ranks 7th on the list, it deserves a deeper look.

Jim Cramer in a latest program discussed the changing consumer trends in the US, wondering whether the consumer is just “fed up” of paying high prices and becoming “frugal.” Cramer said this “frugal thesis” is not “obvious” but he has recognized this latest trend based on some new developments. Cramer named a few consumer companies that are benefitting from the changing consumer behavior because of their discounted price offerings. Cramer rejected the notion that dollar stores are cheap. He said these stores raise prices “aggressively” and calling them dollar stores has become a “misnomer.” The CNBC host said the consumers “want prices lower” and that’s why dollar store companies are getting crushed in the new environment.

Jim Cramer also said the “renting society” is winning the “owning society,” pointing to a new trend where consumers are renting boats instead of buying them to enjoy the experience without spending a fortune.

For this article we watched several latest programs of Jim Cramer aired on CNBC and picked some stocks he’s recommending investors to buy or sell. With each stock we have mentioned the number of hedge fund investors. Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).

Unity Software Inc (NYSE:U)

Number of Hedge Fund Investors: 35

Jim Cramer in a latest program recommended investors to say away from Unity Software Inc (NYSE:U), calling the stock a “falling knife.”

Unity Software Inc (NYSE:U) has lost a whopping 57% so far this year and Unity bears believe it’s not a buy-on-the-dip stock since its valuation based on EBITDA should be seen in context of low free cash flow and high adjustments.

Analysts believe Unity Software Inc (NYSE:U) merger with ironSource ran into integration problems that would weigh on expectations related to the deal. As of May Unity Software Inc (NYSE:U) has $2.2 billion of convertible notes and $1.2 billion in cash. This shows Unity net debt stands at about $1 billion. During the first quarter Unity Software Inc (NYSE:U) had $79 million of adjusted EBITDA but its free cash flow translated into a negative $15 million. During the first quarter, total revenue fell 8% year over year. Amid this lackluster performance and volatility, Unity Software Inc (NYSE:U) isn’t a strong buy for investors looking for stability in the current environment.

Carillon Eagle Mid Cap Growth Fund stated the following regarding Unity Software Inc. (NYSE:U) in its first quarter 2024 investor letter:

“Unity Software Inc. (NYSE:U), a leading provider of mobile game development and monetization software, saw shares decline as the company detailed a restructuring strategy that will take some time to realize. Unity plans to divest its unprofitable and lower-margin segments such as professional services and to reaccelerate growth rates through product development and new partner distribution strategies. We expect the company to be largely through the transition by late 2024, and we believe investors should begin to anticipate the positive 2025 outlook well in advance.”

Overall, Unity Software Inc (NYSE:U) ranks 7th on Insider Monkey’s list titled 10 Stocks to Buy and Sell Before the Third Quarter 2024 According to Jim Cramer. While we acknowledge the potential of Unity Software Inc (NYSE:U), our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than Unity Software Inc (NYSE:U) but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.

Disclosure: None. This article is originally published at Insider Monkey.

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Jim Cramer Says Unity Software Inc (U) is a ‘Falling Knife’; Recommends Investors to Stay Away

Unity Software Inc (NYSE:U)

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