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

Some in the know believe this is a value stock that will provide big returns in the long run. Our writer considers whether such faith is justified.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

Concept of two young professional men looking at a screen in a technological data centre

Image source: Getty Images

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

The Chief Technology Officer (Hardware) of Raspberry Pi (LSE:RPI), and three people closely connected with him, think the company’s stock offers good value at the moment.

How do I know this?

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

Should you invest £1,000 in Shell right now?

When investing expert Mark Rogers has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets. And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if Shell made the list?

See the 6 stocks

Spending £122,014 on the stock tells me that they have confidence in the long-term potential of the low-cost computer manufacturer.

And judging by the success of the company’s June IPO, others appear to agree.

Raspberry Pi’s shares were initially offered to the public at 280p each. On debut, they soared in value and closed their first day of trading at 385p — a premium of 37.5%.

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

Created with Highcharts 11.4.3Raspberry Pi Plc PriceZoom1M3M6MYTD1Y5Y10YALLwww.fool.co.uk

A track record of growth

Raspberry PI is a British success story.

It has an excellent reputation for quality and its products are championed by a community of enthusiasts. But it’s a misconception that its core market is providing computers to hobbyists. In fact, the majority of its sales are made to industry and commerce.

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% on FY22.

MeasureFY21FY22FY23
Revenue ($’000)149,587187,859265,797
Gross profit ($’000)41,91742,28065,955
Gross profit percentage (%)28.022.524.8
Profit after tax ($’000)14,85117,06731,572
Source: company prospectus

However, there are no clues as to how the company will perform in 2024.

I expect we’ll soon see interim accounts for the first six months of 2024. However, until then, a lot of guess work is required to assess whether the stock is fairly valued.

An optimistic assessment

But Peel Hunt and Jefferies, brokers who’ve recently started covering the stock, have crunched some numbers. They have price targets of 439p and 448p, respectively.

Peel Hunt argues that as the cost of computing falls and artificial intelligence machine learning applications continue to take hold, the ‘fourth industrial revolution’ will happen. It says Raspberry Pi is well placed to take advantage as its computers can be placed close to where data is actioned or created.

The broker optimistically suggests that it could be a new technology giant — a tech superpower, something akin to the current members of the so-called Magnificent Seven.

But at the moment, the company is tiny — it has a market cap of just £737m. Nvidia, for example, is worth over 3,000 times more.

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

Although high, that’s not unusual for the sector. According to IG, the average P/E ratio of the Magnificent Seven is 44, even after the recent sell-off.

Source: IG

Not for me

However, although I admire the company and what it’s achieved, I think there’s a danger of getting carried away with some of the hype.

Investing now would be a little too speculative for me. I don’t know how it’s performing and — I believe — the technology industry is full of examples of over-inflated valuations.

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

Of course, there are plenty of other passive income opportunities to explore. And these may be even more lucrative:

We think earning passive income has never been easier

Do you like the idea of dividend income?

The prospect of investing in a company just once, then sitting back and watching as it potentially pays a dividend out over and over?

If you’re excited by the thought of regular passive income payments, as well as the potential for significant growth on your initial investment…

Then we think you’ll want to see this report inside Motley Fool Share Advisor — ‘5 Essential Stocks For Passive Income Seekers’.

What’s more, today we’re giving away one of these stock picks, absolutely free!

Get your free passive income stock pick

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.

Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool's board of directors. John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. James Beard has no position in any of the shares mentioned. The Motley Fool UK has recommended Alphabet, Amazon, Apple, Meta Platforms, Microsoft, Nvidia, and Tesla. 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.

Pound coins for sale — 51 pence?

This seems ridiculous, but we almost never see shares looking this cheap. Yet this recent ‘Best Buy Now’ has a price/book ratio of 0.51. In plain English, this means that investors effectively get in on a business that holds £1 of assets for every 51p they invest!

Of course, this is the stock market where money is always at risk — these valuations can change and there are no guarantees. But some risks are a LOT more interesting than others, and at The Motley Fool we believe this company is amongst them.

What’s more, it currently boasts a stellar dividend yield of around 8.5%, and right now it’s possible for investors to jump aboard at near-historic lows. Want to get the name for yourself?

See the full investment case

More on Investing Articles

Investing Articles

Up 30% in weeks, does the BAE Systems share price still offer value?

The BAE Systems share price has been on a tear over the past couple of months. This writer sees limited…

Read more »

Three signposts pointing in different directions, with 'Buy' 'Sell' and 'Hold' on
Investing Articles

Hunting for shares to buy as the market trembles? Remember this!

After a choppy week in global stock markets, our writer goes back to basics in his hunt for bargain shares…

Read more »

Investing Articles

3 simple principles to help build wealth in an ISA

As a new tax year opens up new ISA allowances for many investors, our writer shares a trio of things…

Read more »

Investing Articles

US trade tariffs: what they could mean for UK shares like Ashtead, Compass Group, and Experian

US trade tariffs continue to rock global markets, and the UK is no exception. Our writer considers how a new…

Read more »

Mindful young woman breathing out with closed eyes, calming down in stressful situation, working on computer in modern kitchen.
Dividend Shares

The Trump slump has smashed these FTSE 100 shares!

After a rough week for US and UK shares, investors have been shaken. But now these FTSE 100 stocks have…

Read more »

Investing Articles

£10,000 invested in Rolls-Royce shares 5 years ago is now worth…

Rolls-Royce shares have been on fire since April 2020. Part of this is the result of pandemic restrictions lifting, but…

Read more »

Young Asian woman with head in hands at her desk
Investing Articles

£10,000 invested in Tesla stock at its peak in 2024 is now worth…

Over the last few months, Tesla stock has lost nearly half its value. Here, Edward Sheldon explores a few takeaways…

Read more »

Investing Articles

Is the S&P 500 heading for an epic stock market crash?

Our writer shares his thoughts on a very crazy time for the S&P 500 and the wider stock market. How…

Read more »