It’s been less than 90 days since Raspberry Pi (LSE: RPI) debuted on the UK stock market. Yet it could already be set for the FTSE 250 index when the next shake-up is revealed tomorrow (3 September).
This will be based on the closing share price and market cap, so it isn’t guaranteed. But if so, the firm will join the mid-cap index later this month.
So, should I promote the stock to my buy list? Let’s take a look.
What does Raspberry Pi do?
The company makes tiny, low-cost computers that pack in a lot of processing power for their size. They’re also incredibly versatile and can be used for a wide range of applications, including:
- Education: Teaching programming, electronics, and computer science
- Hobbyist projects: Building robots, home automation systems, and retro game consoles
- Industrial applications: Controlling machines and sensors in factories and other settings
However, new use cases for these fruit-sized devices are emerging in artificial intelligence (AI), machine learning, and Internet of Things applications. These are all high-growth industries, making this a stock with enormous long-term growth potential.
A rare profitable tech IPO
The company only went public in June, so there isn’t any historic track record yet. But we do know that the firm grew its revenue 41% year on year to $266m in 2023.
Moreover, it’s already profitable, with a 14% operating margin. Diluted earnings per share (EPS) rose 70% last year.
| 2021 | 2022 | 2023 | |
|---|---|---|---|
| Total revenue | $141m | $188m | $266m |
| Operating profit | $18.8m | $20.1m | $37.5m |
This is encouraging to see because loss-making companies that have gone public in recent years haven’t been well received by investors due to higher interest rates.
I don’t see any forecasts for 2024 yet. But in August we got news about the release of Raspberry Pi Pico 2, a single-board computer built on RP2350, its new high-performance microcontroller platform.
CEO Eben Upton commented: “We continue to make encouraging progress across the business and Raspberry Pi Pico 2 and RP2350 embody our core values of performance, flexibility, and affordability…We look forward to other exciting product releases through the second half of 2024 and into 2025.”
That sounds like an optimistic tone to me, though I note the firm faces a fair bit of competition worldwide. Also, like many tech companies, Raspberry Pi could face supply chain disruptions for semiconductors. That’s an ever-present risk.
A massive potential growth opportunity
The stock is currently trading on a high price-to-earnings (P/E) multiple of 32. So the market is willing to give Raspberry Pi a premium valuation for now. Whether it’ll continue to do so will depend on how quickly the company grows its sales and earnings.
Looking forward, management sees a $21bn combined market for industrial, embedded, enthusiast, and educational computing. However, research provider Fortune Business Insights has estimated that the global Internet of Things market could grow from $596bn in 2023 to $4trn (trillion!) by 2032.
Put simply, there seems plenty for the firm to go after over the next decade. And with $266m in sales and a £776m market cap (a tiddler in tech stock terms), it’s easy to envisage it growing much larger over time.
However, it’s still very early days for the stock. On 24 September, the company will release its earnings for the six months ended 30 June. I’ll read those first before deciding my next move.
