Raspberry Pi‘s (LSE: RPI) been the top-performing stock in the FTSE 250 in December. Now at 663p, the share price is up a whopping 82% in just one month.
The mini-computer maker only listed in June at an offer price of 280p. So it’s refreshing to see a UK tech stock doing so well. Hopefully, ongoing success entices more tech firms to dip their toes in the London market — the waters might not be as chilly as first feared!
Why has the stock suddenly spiked higher?
Raspberry Pi produces low-cost single-board computers and microcontrollers. In September, it joined the FTSE 250 and published its maiden H1 earnings report. In this period, revenue jumped 61% to $144m, while underlying profit (EBITDA) rose 55% to $20.9m. Both were above expectations.
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However, despite this robust growth, there was no upgrade to its full-year outlook. Following this, the share price meandered for a few weeks.
Then in mid-November, Raspberry Pi announced a strategic partnership with Italian firm SECO to develop a human-machine interface solution targeting industrial and Internet of Things (IoT) applications. This will be based on Raspberry Pi’s new Compute Module 5 (CM5).
On this collaboration, analysts at broker Jefferies wrote: “The partnership with SECO is an example of Raspberry Pi’s increased ability to engage with larger original equipment manufacturer customers and partners, that can help expand the addressable market for the company’s compute modules“.
On 18 December, US hedge fund SW Investment Management announced it had taken a 3.59% stake in the firm. According to analytics platform WhaleWisdom, this is a $378m fund that mainly invests in US tech shares. So this is encouraging, assuming the fund’s interested in the company’s long-term prospects.
Finally, the company’s shareholder base is probably worth noting. The Raspberry Pi Foundation and Arm Holdings hold more than 55% of the shares. A tight free float (less shares available for public trading) can contribute to heightened volatility, as even modest changes in demand can have an outsized impact.
Risk and valuation
The company’s forecast to generate around $284m in revenue in 2024, then $327m and $370 in 2025 and 2026 respectively. So we’re looking at about 14-15% top-line growth. However, profits are expected to grow faster.
The firm’s profitability is one thing I like here. It already sports a 12% operating margin, meaning this isn’t a jam-tomorrow tech story.
If we judge the stock on earnings, it might look a little pricey. The forward price-to-earnings (P/E) ratio is 57. However, the forward price-to-sales (P/S) ratio of 4.7 doesn’t look too bad for a surging stock. I don’t think that’s grossly overvalued, given the growth prospects.
One risk here is that Raspberry Pi products rely heavily on Arm’s processors and other semiconductors. Any disruptions in supply, as seen during the pandemic, could delay production and impact sales.
I like this stock
Raspberry Pi’s an innovative, founder-led company with a strong brand and promising opportunities in high-growth markets like industrial IoT applications. So this is a stock that I’m interested in.
I’m going to wait until the company reports its full-year earnings in the New Year. If I like what I read, I may open a starter position in the stock.
