UK investors are piling into Rigetti stock. Should I follow the crowd and buy too?

Forget blue-chip shares like AstraZeneca, Unilever, and Barclays – in recent weeks UK investors have been piling into a little known stock called Rigetti Computing (NASDAQ: RGTI). Last week, this was the fourth-most-bought stock on AJ Bell’s platform.

Should I follow the crowd and buy this growth stock for my ISA? Let’s take a look at the investment case.

What does Rigetti do?

Rigetti is a US-listed quantum computing company. Still in its infancy today, quantum computing is an emerging field of computer science that harnesses the capabilities of quantum mechanics to create computers that are far more powerful than standard computers (with a quantum computer, a problem that might take a traditional computer thousands of years to solve can potentially be solved in a matter of minutes).

Rigetti is a pioneer in ‘full-stack’ quantum computing, meaning that it designs and produces high-powered quantum chips, integrates them with control systems, and develops software for programmers to use. Through its Quantum Cloud Services (QCS) platform, its machines can be integrated into any public, private or hybrid cloud, so there’s a lot of potential here.

“Were on a mission to build the world’s most powerful computers to help solve humanity’s most important and pressing problems”
Rigetti Computing

The financials and valuation

So, this all sounds very exciting. But what about the numbers and valuation?

Well, there are no earnings here as the tech company isn’t profitable yet. So, we can’t get a price-to-earnings (P/E) ratio.

But the company is generating some revenue. So, we can look at the price-to-sales ratio and compare that to other growth stocks.

This year, analysts expect Rigetti to generate revenue of around $8.1m. Next year, the forecast is $21.5m.

Compare those figures to the current market cap of $14.2bn and we get price-to-sales ratios of 1,753 and 660.

Is this a bubble?

These are really high multiples.

To put them in perspective, AI stock Palantir – which was recently called one of the most overvalued stocks of all time – has a price-to-sales ratio of about 100. Meanwhile, Nvidia, which is also seen as expensive by many investors, is on roughly 22.

Looking at the figures here, I think this stock is probably in ‘bubble’ territory right now. It seems to me that a lot of retail investors (and maybe algorithmic traders too) have piled into it without looking at the financials and with little concern for valuation (which always matters in the end).

And looking beyond the valuation, one other thing that concerns me is the share price chart. Recently, it has gone ‘parabolic’ (ie almost vertical). I’ve seen this happen before with growth stocks and it usually ends in tears.

I don’t want Rigetti to be ‘Regretti’

Given the valuation and share price chart, I won’t be buying the stock for my ISA in the near term. The company does have potential, however in my view, there are better – and safer – growth stocks to buy for my portfolio today.

The post UK investors are piling into Rigetti stock. Should I follow the crowd and buy too? appeared first on The Motley Fool UK.

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Edward Sheldon has positions in Nvidia and Unilever. The Motley Fool UK has recommended AstraZeneca Plc, Barclays Plc, Nvidia, and Unilever. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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