I think the best way to think about the metaverse is that it’s not about families plugged into headsets and interacting in virtual reality. Instead, it reflects the way our personal identities, assets, and communities have merged from the physical to the digital rather than a wholesale replacement of our current world.
Much like we don’t assess the success of cryptocurrencies like Bitcoin (BTC-USD) on the continued existence of central banks, we shouldn’t apply the same extreme thinking to metaverse stocks.
With this backdrop in mind, the following metaverse stocks reflect the continued evolution of the metaverse. They represent the best trade-off between value and upside potential.
Roblox Corporation (RBLX)
Roblox Corporation (NYSE:RBLX) is a platform that offers a blend of user-generated 3D experiences and virtual assets.
RBLX is my momentum pick out of these metaverse stocks to buy. Recently, the company reported a strong quarterly report as it exceeded top and bottom line estimates. These financials can be chalked up to the company’s robust user growth and engagement metrics. Users spent over 16 billion hours on Roblox, a 20% increase year over year (YOY). Meanwhile, the average daily users surged to 70.2 million, up 20% YOY.
Notably, RBLX has been cash flow positive over the last twelve months, recording 21.42 million, despite reporting accounting losses in the form of earnings. Analysts predict that the stock will increase its revenues looking ahead. Its current price-to-sales ratio of 10.56 is higher than its forward price-to-sales ratio of 7. This indicates possible upside in store for RBLX going forward.
Unity Software (U)
Unity Software (NYSE:U) is known for its tools that enable the creation of interactive, real-time 3D content.
While RBLX represents a momentum play that could carry into next year, Unity is a contrarian pick. It takes advantage of some short-term weaknesses exhibited by the company.
The company’s share tanked upon the release of its quarterly report last month. It missed Q3 earnings (loss of $0.32/share) but reported a positive free cash flow of $104 million. Also, it came up short on some crucial revenue estimates. Thus, Q3 sales landed at $544.2 million, below the forecast but up 69% YOY.
However, analysts expect significant growth in free cash flow in the next two years, potentially reaching $590 million by 2025.
Since the report was released, it has surged 21.36% over the past five days. And with a Santa Claus rally in mind, it could rally higher. It’s trading at a slight discount to its forward PS ratio of 6.37.
Therefore, Unity is one metaverse stock to consider.
Nvidia (NVDA)
Finally, Nvidia (NASDAQ:NVDA) is well-known for its GPUs. But now it is expanding into essential semiconductors and chip systems. Nvidia essentially sells the picks and shovels needed for the virtual reality aspect of the metaverse to fully come alive.
NVDA has many irons in the fire to power its future growth. One of those is its collaboration with Microsoft’s (NASDAQ:MSFT) Azure cloud computing, announced earlier this year.
The agreement will see the integration of Nvidia’s Omniverse with Microsoft 365, Teams, and OneDrive for better developer cooperation.
True, the company’s P/E ratio of 66.12 times earnings is a little rich. But, it’s important to balance this fact with its overall earnings growth potential. And in this case, the trade-off may be worth it for investors.
On the date of publication, Matthew Farley did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Matthew started writing coverage of the financial markets during the crypto boom of 2017 and was also a team member of several fintech startups. He then started writing about Australian and U.S. equities for various publications. His work has appeared in MarketBeat, FXStreet, Cryptoslate, Seeking Alpha, and the New Scientist magazine, among others.