Every so often, I come across a stock that seems to check all of my boxes. I like companies without a lot of debt with high-demand products. Preferably, these companies will also be engaged in capital-return policies like share buybacks and growing dividends.
Often, these companies are attractive when they are out of favour with the general investor community, which makes it necessary to determine whether there is an issue with the company or if the lack of investor enthusiasm is unwarranted.
Celestica (TSX: CLS)(NYSE: CLS) is one of those companies that I just can’t take my eyes off of. While it does not pay a dividend, it ticks a lot of the boxes that I look for when searching for stocks to buy. Although I take the occasional flyer on a high-beta, high-valuation stock, I find cheap value stocks more appealing in general.
Celestica certainly seems to be a stock that is worth buying from a value-investing perspective. From this point of view, the technology-related stock is one of the cheapest out there. At its current price, the stock has a forward price-to-earnings ratio of 8.3 and a price to book of 1.1.
Fundamentally, it has enough cash to pay down all of its debt and still have half of it left over to spend on capital expenditures, share buybacks, or backscratchers for its employees. Its share count has been steadily decreasing for years to the point where it has half the number of shares outstanding that it had years ago.
The company operates in an attractive space, providing design, manufacturing, and supply chain solutions to many large companies around the world. It has relationships with businesses in defence, healthcare, and technology companies, making its business quite diverse from a geographic and industrial perspective.
Even the financials aren’t half bad, with revenue increasing 12% year over year in the third quarter of 2018. Of course, there were some dark spots on the report, with earnings being down year over year.
But considering how many hot companies do not even have earnings and people are still buying their shares, the fact Celestica’s earnings are still positive is a plus.
My biggest hesitation is this: if everything looks so good, the business is doing well, and the stock seems to be excellent value, why isn’t its value being recognized?
Part of the problem is most likely due to its earnings, mentioned earlier. Its lacklustre earnings growth may be sowing doubt among investors as time goes on without apparent change.
Another issue could be the lack of dividend. It can be easier to hang on to a company that has shares standing still when there is a payout coming in on a regular basis.
But Celestica appears to have a long-term plan, so it might be worth sticking around for a little longer. The years of relatively stagnant share price have given me pause. I remember looking at this stock a few years ago, thinking its value must make it a buy. But here it sits, barely moving over the past few years.
Nevertheless, Celestica remains a buy for value investors who don’t mind waiting on a non-dividend-paying stock. While the lack of a dividend does make the wait a little more uncomfortable, someday the value in this cheap tech stock will most likely be realized.
