Even as the Canadian stock market witnessed another year of big ups and downs in 2023, some fundamentally strong stocks like Celestica (TSX:CLS) continued to deliver solid gains to its investors. After posting 49% positive returns in the previous two years, the ongoing rally in CLS stock gained steam this year as it currently trades with 145% year-to-date gains at $37.37 per share. With this, Celestica has risen nearly 266% in the last three years against the TSX Composite benchmark’s 15.3% advances during the same period.
In this article, we’ll look at the key strengths of Celestica’s business and its financial growth outlook to explore whether it’s the right time to buy CLS stock for the long term.
Celestica stock and its key strengths
If you don’t know it already, Celestica is a Toronto-headquartered firm with a market cap of $4.4 billion. The company primarily focuses on manufacturing electronic products for other businesses. Imagine it like a big workshop where other companies go when they need someone to manufacture their electronics. Celestica mostly doesn’t design these products. Instead, it gets the designs from their customers and then builds them. This can include all sorts of electronics, like parts for computers, medical devices, or even aerospace and defense-related equipment.
Based on its 2022 financial figures, Celestica generated nearly 59% of its total revenue from its connectivity & cloud solutions segment while the remaining advanced technology solutions segments.
In addition, Celestica helps with fixing and making sure that the products it builds work well. This way, companies that have great ideas for electronics but don’t want to build them themselves for any reason can rely on Celestica to make them. Geographically, Thailand, Malaysia, and China have been the company’s three largest markets in recent years, making its business model well diversified.
Strong financial growth trends
The primary reason behind the big rally in CLS stock in recent years could be its strong financial growth even in a difficult macroeconomic environment. Even as businesses across the world continue to face difficulties due to the global economic slowdown, Celestica’s revenue grew positively by 11.8% YoY (year over year) in the first three quarters of 2023 to US$5.8 billion.
More importantly, higher volumes and an improved mix are continuing to help the company boost its profitability. During the first nine months of the ongoing year, Celestica’s adjusted earnings jumped 23.7% YoY to US$1.67 per share. Similarly, its adjusted net profit margin expanded to 3.5% in these nine months from 3.2% a year ago.
Is CLS stock a buy today?
Although CLS stock has outperformed the broader market by a huge margin in the last three years, I still don’t find it overvalued. This is because its strong financial growth trends and solid fundamental outlook support this rally.
Moreover, Celestica expects its strong revenue growth to continue in 2024 across segments with secular tailwinds and its continued focus on new program wins. That’s why, despite its recent rally, CLS stock has the potential to continue rallying further in the coming years, supported by strengthening financial growth trends, making it really attractive to buy for the long term.