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Investing.com -- HSBC analysts have upgraded Raspberry Pi to a "hold" rating, citing the recent share price decline and the company’s long-term growth potential despite near-term pressures. The target price has been revised to 480p from 500p, reflecting USD weakness.
The stock, which surged 175% post-listing, peaked at 766p in January before dropping 33% to 511p by March 21, underperforming the FTSE 250 by 28%.
A broader downturn in tech sentiment, concerns over AI hardware trade restrictions, and rising costs have weighed on investor confidence.
HSBC analysts note that while "investors should wait for clearer signs of volume growth before considering a more bullish stance," the extent of the underperformance justifies upgrading to “hold.”
Raspberry Pi will report 2024 results on April 2, with volumes expected at 7 million units. This implies a 25% year-on-year decline in the second half and a 15% drop in adjusted EBITDA for the year.
However, management has indicated that unit shipments "recovered steadily from their low point in the summer," suggesting stabilization heading into 2025.
Analysts believe inventory de-stocking will become less of a headwind moving forward.
New product launches are expected to drive growth, with over 20 releases in 2024, including the Pico 2 and Compute Module 5.
HSBC flags the company’s increasing adoption in industrial automation, IoT, and AI-driven computing, noting that its direct-to-OEM strategy presents a compelling long-term opportunity. Analysts forecast unit sales to rise to 8.98 million in 2025, above the consensus estimate of 8.60 million.
While the stock remains expensive at a 2024 PE of 61x, HSBC expects rapid earnings growth to bring this down to 31x by 2026, with gross profit rising 23% and EPS growing at a 38% annual rate over the next two years.
The revised 480p target price "implies a 6% downside," but HSBC maintains that after the sharp decline, the stock is now more fairly valued.