Raspberry Pi shares are piping hot! Should I invest right now?

Raspberry Pi shares are certainly bearing fruit for those lucky enough to have invested early. Have I missed the boat with this one?

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The London Stock Exchange has been hungry for action, and this is evident with Raspberry Pi (LSE: RPI) shares. The current share price of 438p is well above the initial public offering (IPO) price of 280p available to institutional investors.

Here’s what we know about this new kid on the block.

Strong growth

Having dug into the IPO prospectus, I think there’s a lot to like here. Firstly, the Cambridge-based firm is already profitable, which is pretty rare for a new tech stock.

Back in 2021, the likes of Deliveroo and Oxford Nanopore Technologies went public with punchy valuations and significant losses. Neither stock has fared well since interest rates started rising.

Last year, Raspberry Pi’s revenue was $266m, a 41% increase from the year before. Its net profit surged 85% to $31.6m. So this isn’t another ‘jam-tomorrow’ story.

2021*20222023
Revenue $141m$188m$266m
Operating profit$18.1m$20.1m$37.5m
Net profit$14.9m$17.1m$31.6m
*For the year ended 31 December

Also, there is no debt on the firm’s balance sheet and it raised £166m from the IPO to help fund its growth. Sony and ARM Holdings both have stakes in the business.

Not just for kids and hobbyists

Raspberry Pi is known for its credit card-sized computers that were originally designed to encourage and build coding skills among children. These affordable devices quickly gained popularity with hobbyists for tasks such as home device control and retro gaming.

However, these markets only accounted for 28% of sales last year. The rest came from the industrial and embedded (I&E) sector, where its computers are suitable for a wide range of applications like electric vehicle charging, robots, elevators, and sports performance tracking.

It estimates the I&E total addressable market will rise to $21.9bn by 2027, up from $16.3bn in 2023.

In the medium term, the company is guiding for annual unit sales growth of 10%-12%. It says its industrial business will grow faster than the enthusiast and education market.

The potential for supply chain disruption is a key risk here. Chipmaker Broadcom is the firm’s main supplier of system-on-chip components used in its single-board computers. In turn, Broadcom heavily relies on Taiwan Semiconductor Manufacturing Company for its own chips.

So if there is any disruption in the global semiconductor supply chain — wars, earthquakes, pandemics, etc. — this could increase the firm’s costs and cause delays in its ability to fulfil orders.

Cooling-off period

After flying out of the traps, the stock is currently trading on a price-to-earnings (P/E) ratio of 34. That’s pretty pricey, though it’s still very early days. We don’t know how quickly the company will actually grow.

From what I’ve read, Raspberry Pi seems like a perfect fit for my portfolio. However, I’ve had my fingers burnt in the past buying into piping-hot new IPOs. I’ve learned that there’s almost always a better entry point for me to invest, if I’m patient enough.

Nowadays, I prefer to wait to see how a new listing adjusts to life as a public company. Is it hitting — and preferably beating — its own growth targets? Is it using the IPO cash wisely? Or is it all sizzle and no steak (ahem, Beyond Meat)?

All things considered, Raspberry Pi is certainly one of the most interesting stocks to hit the UK market for quite some time. So I’ve put it straight on my watchlist.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Ben McPoland has positions in Taiwan Semiconductor Manufacturing. The Motley Fool UK has recommended Deliveroo Plc and Taiwan Semiconductor Manufacturing. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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