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The Director of Technology (Hardware) of Raspberry Pi (LSE:RPI) and three people closely associated with him believe the company's shares offer good value right now.
How do I know this?
Well, recent stock exchange documents show that during the first two days of August, the four bought 32,474 shares at an average price of 375.73 pence.
Spending £122,014 on shares tells me they have confidence in the long-term potential of the budget computer maker.
And judging by the success of the company's IPO in June, others seem to agree.
Raspberry Pi shares were initially offered to the public at 280p each. On their debut, their value skyrocketed and they closed their first day of trading at 385p, a premium of 37.5%.
Since then, they have traded in a range of 326p-550p. Last week (15 August), the stock closed at the same price as after the first day of trading.
A history 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 is a mistake to think that its main market is to supply computers to hobbyists. In fact, most of its sales are 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 $31.6 million (£24.4 million). This represented an increase of 85% on FY22.
| Extent | Fiscal year 21 | Fiscal year 22 | Fiscal year 23 |
|---|---|---|---|
| Revenue ($'000) | 149,587 | 187,859 | 265,797 |
| Gross profit ($'000) | 41.917 | 42.280 | 65.955 |
| Gross profit percentage (%) | 28.0 | 22.5 | 24.8 |
| Profit after tax ($'000) | 14.851 | 17.067 | 31,572 |
However, there are no clues as to how the company will perform in 2024.
I hope we will soon see the interim accounts for the first six months of 2024. However, until then, a lot of guesswork is required to assess whether the shares are fairly valued.
An optimistic assessment
But Shell hunting and JefferiesBrokers who recently started covering the stock have done some math. They have price targets of 439p and 448p respectively.
Peel Hunt argues that as the cost of computing falls and AI machine learning applications continue to gain ground, the “fourth industrial revolution” will occur. He says Raspberry Pi is well positioned to take advantage of this, as its computers can be placed close to where data is being processed or created.
The broker optimistically suggests that it could be a new tech giant, a technological superpower, something akin to the current members of the so-called Magnificent Seven.
But for now, the company is small: it has a market capitalisation of just £737m. Nvidiafor example, it is worth more than 3,000 times more.
Still, this still means that Raspberry Pi is valued at a whopping 30.2 times its historical price-to-earnings (P/E) ratio.
While this is a high value, it is not unusual for the sector. According to IG, the average price-earnings ratio for the Magnificent Seven is 44, even after the recent sell-off.
Not for me
However, while I admire the company and what it has achieved, I think there is a danger in getting carried away by the hype.
Investing now would be too speculative for me. I don't know how it's performing and I think the tech industry is full of examples of overinflated valuations.
I will wait until the next trading update before re-analysing the investment case and deciding whether Raspberry Pi offers good value for money.