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It's been less than 90 days since Raspberry Pi (LSE:RPI) debuted on the UK stock market. However, it could already be ready for the FTSE 250 Index index when the upcoming restructuring is revealed tomorrow (September 3).
This will be based on the stock's closing price and market capitalization, so it's not guaranteed. But if it does, the company will be added to the mid-cap index later this month.
So, should I promote the stock on my shopping list? Let's take a look.
What does Raspberry Pi do?
The company makes small, low-cost computers that pack a lot of processing power for their size. They are 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 gaming consoles.
- Industrial applications: Control of machines and sensors in factories and other environments.
However, new use cases are emerging for these fruit-sized devices in artificial intelligence (ai), machine learning, and Internet of Things applications. These are all high-growth industries, making this stock one with huge long-term growth potential.
<h2 class="wp-block-heading" id="h-a-rare-profitable-tech-ipo”>A rare and profitable tech IPO
The company only went public in June, so there is no historical record yet. But we do know that the firm increased its revenue by 41% year-over-year to $266 million in 2023.
It is also already profitable, with an operating margin of 14%. Diluted earnings per share (EPS) increased 70% last year.
| 2021 | 2022 | 2023 | |
|---|---|---|---|
| Total revenue | 141 million dollars | 188 million dollars | $266 million |
| Operating profit | $18.8 million | $20.1 million | $37.5 million |
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 higher interest rates.
I don't see any forecasts for 2024 yet, but in August we received news about the launch of the Raspberry Pi Pico 2, a single-board computer built on the RP2350, their new high-performance microcontroller platform.
CEO Eben Upton commented: “We continue to make encouraging 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 further exciting product launches during the second half of 2024 and into 2025.”
That sounds like an optimistic tone to me, though I note that the company faces considerable competition globally. Also, like many tech companies, Raspberry Pi could face disruptions in the semiconductor supply chain. That's an ever-present risk.
A huge opportunity for potential growth
The stock is currently trading at 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 will continue to do so will depend on how quickly the company grows its sales and earnings.
Looking ahead, management forecasts a combined market of $21 billion 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 $596 billion in 2023 to $4 trillion in 2032.
In short, the company looks like it has a lot going for it in the next decade. And with $266m in sales and a market capitalisation of £776m (a small number in terms of tech stocks), it's easy to imagine it growing much bigger over time.
However, it is still too early for action. On September 24, the company will publish its earnings for the six-month period ended June 30. I will read them first before deciding my next move.
