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Around two years ago, a family member in the US told me about a little-known Nasdaq stock called Rigetti Computing (NASDAQ: RGTI). This family member had worked with the company’s CEO and suggested I buy some shares near $1.
Now, I did take a look at the quantum computing company at the time. But with the technology still in its infancy, I decided it was too risky…
What a mistake
Fast forward to today and the stock has risen around 50-fold since. So you could say I made a major mistake not buying in. Had I put five grand on it back then, I’d now have about $250k. I could have bought myself a Ferrari!
Is it too late to buy?
Is it too late for me to get on board the Rigetti train today? Sadly, I think it is.
The company does have some really interesting technology. A leader in the quantum computing space, it offers ‘full stack’ solutions and has products ready to ship. But here’s the thing – quantum computing technology’s unlikely to go mainstream until the mid-2030s to 2040. That’s a long time away.
And in the near term, Rigetti’s sales are forecast to be very small. This year, analysts expect revenue of just $8.1m (versus $10.8m last year). That’s peanuts.
Next year, sales are forecast to jump to $21.5m. But that’s still peanuts. Especially when we look at the valuation here. At today’s share price, Rigetti has a market-cap of around $15.6bn.
So taking that sales forecast for next year, we’re looking at a price-to-sales ratio of about 725.
Risk versus reward
That’s a sky-high valuation. For reference, Palantir trades on about 100.
Now obviously, new technologies can generate big returns for investors in the long run. So they can be worth paying up for. But looking at that sales multiple, and how far the stock has run over the last year, I think the stock’s gotten ahead of itself. Ultimately, I don’t think this company is worth $15.5bn.
If I was to buy the stock now, I think there’d be more chance of me losing money than making it. Because history shows stocks that shoot up like this tend to come crashing down at some point if the fundamentals don’t support the share price rise.
Of course, the stock could keep rising in the near term. Today, retail investors continue to pile into it, pushing the share price higher.
At some stage though, I reckon the fundamentals (ie sales and earnings) are going to come into focus. And when that happens, things could get ugly.
It’s worth noting that in recent days there’s been talk that CEO Subodh Kulkarni has been selling all his shares. This suggests he currently sees the company as overvalued.
Better opportunities in the market?
The good news is that there are lots of other great growth stocks out there that look a bit safer. In industries such as artificial intelligence, cloud computing, chips, and FinTech, there are tons of opportunities right now.
