These insiders think the Raspberry Pi is a value stock full of potential. Are they right?

Chief Technical Officer (Instruments) of Raspberry Pi (LSE:RPI), and three people close to him, think the company's stock offers good value at the moment.

How do I know this?

Well, the latest stock exchange filings show that, during the first two days of August, four of them bought 32,474 shares at an average price of 375.73p.

Spending £122,014 on the stock tells me that they are confident in the long-term strength of a cheap computer manufacturer.

And judging by the success of the company's June IPO, others seem to agree.

Raspberry Pi shares were initially offered to the public at 280p each. Initially, they rose in value and closed their first day of trading at 385p – a 37.5% premium.

They have since traded in a range of 326p-550p. Last week (August 15) the stock closed at the same price as it did after the first day's trading.

Growth record

The Raspberry PI is a British success story.

It has an excellent reputation for quality and its products are driven by a community of enthusiasts. But it is a misconception that its main market is providing computers to hobbyists. In fact, most of its sales are for industrial and commercial purposes.

This has helped it grow rapidly in recent years.

For the year ended 31 December 2023 (FY23), it recorded a profit after tax of $31.6m (£24.4m). This was an increase of 85% over FY22.

However, there are no indications of how the company will perform in 2024.

I expect that we will soon see interim accounts for the first six months of 2024. However, until then, a lot of guesswork is required to assess whether a stock is reasonably priced.

An optimistic assessment

But Peel Hunt again Jeffriestraders who have just started to cover the stock, reduce some numbers. They have price targets of 439p and 448p, respectively.

Peel Hunt argues that as computing costs fall and machine learning applications of artificial intelligence continue to take hold, a 'fourth industrial revolution' will occur. It says the Raspberry Pi is well placed to take advantage as its computers can be placed close to where data is being processed or created.

The merchant raises the prospect that it may be a new technological giant – a technological superpower, something similar to the current members of the so-called Magnificent Seven.

But at the moment, the company is small – it has a market value of just £737m. Nvidiafor example, it costs more than 3,000 times more.

However this still means that Raspberry Pi is valued at 30.2 times its historical price-to-earnings (P/E) ratio.

Although high, that is not unusual in this industry. According to IG, Magnificent Seven's P/E ratio is 44, even after recent sales.

Not me

However, while I admire the company and what it has achieved, I think there is a danger of getting carried away by some of the hype.

Investing now would be too speculative for me. I don't know how it works and – I believe – the tech industry is full of examples of inflated valuations.

I will wait until the next trading update before revisiting the investment case and deciding whether the Raspberry Pi offers value for money.