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Until now, Raspberry Pi (LSE:RPI) has certainly been a nice tasting investment. On the day the budget computer maker listed in London earlier this month, priced at £2.80, shares soared at one point to as much as 40% above the listing price. Raspberry Pi shares are still trading around a third above the listing price.
Did the listing underwriters price them too low? I think so: such a jump suggests that a higher price could have worked.
But that's already a thing of the past. As an investor, the question I ask myself is whether I should add Raspberry Pi shares to my portfolio in the hope of future price growth.
Set a long-term goal
As a believer in the long-term investing approach, I tend to ask myself how well I think a stock could perform over the years.
If Raspberry Pi shares can rise another 33%, as they have since listing, they will hit £5. If the share price can rise by less than 6% each year, it would have surpassed £5 by 2030.
That may not sound exciting. After all, the company still doesn't pay dividends and 6% annual growth is little more than the current interest rate set by the Bank of England. Putting my money in a bank would carry almost no risk of capital loss, unlike buying shares in any company.
On the other hand, Raspberry Pi is a rare British technology success story in the London market at the moment. Its simple computers have been hugely popular with budget buyers, while the simple nature of its design means there are a number of possible uses that could help spur growth.
Remember when Apple When the iPad launched, people asked why anyone would want what looked like an oversized smartphone. No one asks that these days, since iPads are used in a multitude of situations, from hotel check-ins to warehouse management.
I think Raspberry Pi has a huge untapped market. Last year sales increased 41%, after an increase of 34% the previous year.
Optimistic about the business, what about the stock?
A strong brand, unique market positioning and patented technology could keep the Raspberry Pi ecosystem growing at a good pace. That can be good for the company. Reported profits last year were $31.6 million and I think they could grow in the future.
But that puts Raspberry Pi stock at a current P/E ratio of 29. That seems expensive to me. A price of £5 would imply a potential P/E ratio of around 39.
Again, that seems expensive to me even over a five-plus year timeframe.
We have seen the business grow rapidly. If earnings per share can grow fast enough, the forward P/E ratio would fall and a price of £5 by 2030 could certainly be possible, if not sooner.
However, I see the risk that another company will try to imitate the business model and focus on even lower manufacturing costs. Raspberry Pi had a head start, but so did Sinclair and Amstrad in the 1980s.
There's a lot to like here, but the rating is a little rich for my tastes at the moment. So I won't invest.
