I must confess, I’d taken my eye off Raspberry Pi (LSE:RPI) shares in recent months. I certainly find the company interesting, but I’d been put off by the stock’s earnings multiples and its lack of an economic moat.
However, Raspberry Pi shares have surged 106% over the past three months. That’s index-topping growth. And it means that a £5,000 investment then would now be worth £10,300. A truly impressive return for any investor.
Why’s Raspberry Pi flying high?
Raspberry Pi, known for its affordable computing solutions, impressed investors with its first set of results in September since listing on the stock market in June. The firm reported a 61% increase in revenue to $144m for the first half of 2024. Meanwhile, gross profit rose 47% to $34.2m, surpassing internal projections.
But investor sentiment really jumped when it partnered with Italian firm SECO to develop a human-machine interface based on its Compute Module 5, targeting industrial IoT applications. Analysts highlighted this as a step toward expanding its OEM market.
Additionally, US hedge fund SW Investment Management acquired a 3.59% stake, signalling further confidence in its growth. Coupled with a relatively small float — the Raspberry Pi Foundation and Arm Holdings hold more than half of the shares — the stock surged. A tight float can lead to more volatility given there are fewer available shares available to buy and sell.
Management’s forecasts remain cautious
On 29 January, Raspberry Pi’s stock price fell more than 3% in early trading following the announcement that its adjusted operating profit for 2024 would come in “not less than” $36m. This figure’s at the lower end of market expectations, falling short of the consensus estimate of $38.2m and representing a dip from the previous year’s $43.4m.
Despite challenging market conditions, the company reported a recovery in monthly unit shipments from their summer low, with total shipments reaching 7m for the year. Looking ahead, Raspberry Pi expects demand to build gradually through the year, with medium-term fundamentals remaining extremely positive. The company expressed confidence in its unit economics for FY 2025, supported by sufficient memory supply to meet expected demand into Q3.
The longer term
For the longer term, the company expects revenue to grow steadily from around $280m in 2024, with management aiming for $370m by 2026. Earnings however, are expected to grow faster. Here’s a table with the earnings per share (EPS) and price-to-earnings (P/E) data, based on consensus estimates.
| Fiscal Period: December | 2024 | 2025 | 2026 |
|---|---|---|---|
| P/E ratio | 121x | 76.6x | 59x |
| EPS ($) | 0.0758 | 0.1202 | 0.156 |
Despite Raspberry Pi operating in a very interesting sector, and clearly its low-cost compute products are gaining traction, this valuation data’s enough to make me think twice about investing in the stock. What’s more, investors may be concerned by the lack of barriers of entry in the low-cost computing market.
For now, it’s not a stock I’m considering, but I’m thrilled to see a British tech stock gaining momentum.
