Shortly after listing in June, Raspberry PI (LSE:RPI), the FTSE 250 budget computer manufacturer, saw its share price climb to 500p. This was 179% higher than the offer price of 280p.
At the time of writing (29 November), it’s 356p — 28.8% lower than its all-time high.
Could this be an excellent buying opportunity for me? Let’s take a look.
A more positive view
The first thing to note is that maybe things are not as bad as the above analysis suggests.
Its current share price is still at a premium to the initial value at which shares were offered to investors. Indeed, since making its stock market debut, the company’s stock has never fallen below 316p.
However, it looks to me as though investors got a little excited during the summer. Maybe the good weather and a lack of high-profile listings in the UK — particularly in the tech sector — put everyone in a good mood and helped boost sentiment towards the computer maker.
At one point, the stock was changing hands for 38.6 times its earnings per share (EPS) for the year ended 31 December 2023 (FY23) — higher than all of the Magnificent 7.
Looking to the future
But share prices are supposed to reflect future earnings and cash flows.
For the year ending 31 December 2024, the consensus of analysts is for EPS of $0.10. However, during the first half of the year, the company disclosed EPS of 5.84c, so it looks to me as though it’s going to do better than this.
And if it were to report earnings of $0.12 (9.46p) per share in FY24, its forward price-to-earnings (P/E) ratio is 37.6. Looking ahead to FY25, it drops to 32.4.
Yes, this is expensive but it can be justified if it continues to grow rapidly. Very few British companies are likely to see a 40% increase in their earnings over the next two years.
Much of this anticipated growth is expected to come from the move towards edge computing. This involves processing data as close to its source as possible. It’s cheaper, more secure, and less dependent on a reliable network connection.
Examples include capturing lightning strikes to predict flash flood locations and the remote monitoring of energy pipelines. Raspberry Pi’s small computers are ideal for these types of applications.
I’ve seen one forecast predicting that the edge computing market will increase from an estimated $13.6bn (2024) to $182bn (2032).
Peel Hunt, the UK investment bank, also sees huge potential and appears to be a big fan of the company. In a research note it gushed: “Edge computing is set to do to Raspberry Pi what the desktop did to Microsoft, the smartphone did to Apple and the datacentre is doing to Nvidia.”
Wow!
My view
Personally, I think Raspberry Pi’s a great company with an excellent brand. It’s come a long way since its formation in 2012. But I think comparisons with some of the biggest tech stocks on the planet are a little premature.
And there are numerous examples of privately-owned companies that struggle to adapt to life as a listed business. A slowdown in growth can lead to a loss of investor confidence and significantly reduce company valuations.
I’m therefore going to leave it a few months before re-visiting the investment case.
