Raspberry Pi is set to FTSE 250 after 3 months on the stock market! Time to invest?
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It has been less than 90 days since then Raspberry Pi (LSE: RPI) was delisted from the UK stock market. However it is already set to FTSE 250 an indication that the next move will be revealed tomorrow (September 3).
This will be based on the closing share price and market cap, so it is not guaranteed. But if so, the company will join the mid-cap index later this month.
So, should I promote the stock to my shopping list? Let's take a look.
What does the Raspberry Pi do?
The company makes small, inexpensive computers that pack a lot of processing power for their size. They are also incredibly versatile and can be used in a variety of applications, including:
- Education: Teaching programming, electronics, and computer science
- Hobby projects: Building robots, home automation systems, and retro game consoles
- Industrial applications: Control of machines and sensors in industrial and other settings
However, new use cases for these devices are the fruits of artificial intelligence (AI), machine learning, and Internet of Things applications. These are all high-growth industries, giving this stock great long-term growth potential.
A technology IPO with extraordinary returns
The company went public in June, so there is no track record yet. But we do know that the company has grown its revenue 41% year-over-year to $266m by 2023.
Moreover, it is already profitable, with an operating margin of 14%. Diluted earnings per share (EPS) rose 70% last year.
| 2021 | 2022 | 2023 | |
|---|---|---|---|
| Net income | $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 have not been well received by investors due to high interest rates.
I don't see any predictions for 2024 yet. But in August we received news about the release of the Raspberry Pi Pico 2, a single board computer built on the RP2350, its new high-performance microcontroller platform.
CEO Eben Upton commented: “We continue to make encouraging progress across the business and the Raspberry Pi Pico 2 and RP2350 embody our core values of performance, flexibility, and affordability…
That sounds like a ton of hope to me, even though I see the company is facing little competition globally. Also, like many technology companies, the Raspberry Pi can experience disruptions in the supply of semiconductors. That is an ever-present danger.
Huge potential growth opportunity
The stock currently trades at a high price-to-earnings (P/E) multiple of 32. So the market is willing to give Raspberry Pi a premium price for now. Whether it continues to do so will depend on how quickly the company grows its sales and profits.
Looking ahead, executives see a combined $21bn market for industrial, embedded, hobbyist, 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!) in 2032.
Simply put, the company seems to have a lot to do in the next decade. And with sales of $266m and a market value of £776m (a tiddler in tech stock terms), it's easy to imagine it growing even bigger over time.
However, it is still very early days for the stock. On September 24, the company will release its earnings for the six months ended June 30. I will read those first before deciding my next move.
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