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It’s been less than 90 days since Raspberry Pi (LSE: RPI) has made its debut on the UK stock market. However, it may already be set for FTSE 250 Index index when the next reorganization is announced tomorrow (September 3).
This will be based on the stock’s closing price and market cap, so it’s not guaranteed. But if it does, the company will join the mid-cap index later this month.
So should I promote the stock on my buy list? Let’s take a look at it.
What can Raspberry Pi do?
The company makes diminutive, low-cost computers that pack a lot of processing power for their size. They’re also incredibly versatile and can be used in a wide range of applications, including:
- Education: teaching programming, electronics and computer science
- Hobby projects: building robots, home automation systems, and retro gaming consoles
- Industrial applications: controlling machines and sensors in factories and other places
But fresh utilize cases for these fruit-sized devices are emerging in artificial intelligence (AI), machine learning, and the Internet of Things. All of these are high-growth industries, making it a stock with huge long-term growth potential.
Rare, profitable tech stock IPO
The company only went public in June, so it doesn’t have any historical track records yet. But we do know that the company grew revenue 41% year over year to $266 million in 2023.
What’s more, it’s already profitable, with a 14% operating margin. Diluted earnings per share (EPS) are up 70% last year.
| 2021 | 2022 | 2023 | |
|---|---|---|---|
| Total revenue | 141 million dollars | 188 million dollars | 266 million dollars |
| Operating profit | $18.8 million | $20.1 million | $37.5 million |
This is encouraging because loss-making companies that have gone public in recent years have not been well-received by investors due to higher interest rates.
I don’t see any predictions for 2024 yet. But in August we got news of the release of the Raspberry Pi Pico 2, a single-board computer built on the RP2350, a fresh high-performance microcontroller platform.
CEO Eben Upton commented: “We continue to make promising progress across the company, and the Raspberry Pi Pico 2 and RP2350 embody our core values of performance, flexibility, and affordability… We look forward to more exciting product launches in the second half of 2024 and into 2025.”
That sounds like an positive tone to me, although I note that the company faces a lot of competition around the world. Also, like many technology companies, Raspberry Pi could face disruptions in the semiconductor supply chain. That’s an ever-present risk.
Huge opportunity for potential growth
The stock is currently trading at a high price-to-earnings (P/E) multiple of 32. The market is therefore willing to give Raspberry Pi a higher valuation for now. Whether that will continue will depend on how quickly the company grows sales and profits.
Looking ahead, management sees a combined market for industrial, embedded, enthusiast, and educational computers worth $21 billion. However, research provider Fortune Business Insights estimates that the global IoT market could grow from $596 billion in 2023 to $4 trillion (trillion!) by 2032.
Put simply, the company looks set to deliver a lot over the next decade. And with sales of $266m and a market capitalization of £776m (which is a low for a tech stock), it’s effortless to imagine it getting much bigger over time.
But the stock is still in its early days. On September 24, the company will release its earnings for the six months ended June 30. I’ll read those first before deciding on my next move.
