3 Things You Need to Know If You Buy Celestica Stock Today

Celestica stock (TSX:CLS) has surged an insane 215% in the last year. So is it now overvalued? Or should investors buy while they can?

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When it comes to growth, one stock that’s more and more in the headlines is Celestica (TSX:CLS). Celestica stock has been surging in growth, and it’s clear why. The company has latched onto the growth in anything chip stocks.

Celestica tests semiconductor chips. So while it doesn’t produce them, it’s a necessary part of the process. However, there are a few things you should know before picking up this stock. Which is why I’m going to get right into it today.

A stable, but growing industry

Celestica, as mentioned, has seen shares soar thanks to the growth in the electronic manufacturing services (EMS) industry. This industry is expected to experience at least moderate growth in the near future. That comes from hot trends like in artificial intelligence (AI), true, but also demand for electronics and outsourcing trends in general.

The company operates in a competitive landscape, with huge companies all vying for the same space. So it’s important to note this before investing in Celestica stock. That being said, the company is unique in that it focuses on complex, high-mix and low-volume manufacturing. This allows it to establish long-term relationships with the best of the best tech companies.

Plus, Celestica continues to actively expand. This not only includes into AI, but also electric vehicles (EV) and medical devices. These too are promising growth opportunities beyond AI.

Earnings are up

All this interest and diversification has of course led to growth for the company in earnings as well. Most recently, revenue increased 5.4% year over year in the fourth quarter to US$1.8 billion. Net income fluctuated, with a decrease of 11.2% however, hitting US$42.4 million.

Even so, the company has remained consistent in its results and remains profitable. Its gross margin remains at 14%, so it’s able to generate profit from its operations, even during these tough and expensive times.

Meanwhile, the profitability means it can afford to have some debt on hand. This has led to a debt-to-equity ratio at a very light 24%. Plus, Celestica holds US$374 million in cash, providing even more financial flexibility.

But is it valuable?

It’s a decent question. Celestica stock is, after all, up a whopping 215% in the last year! Yet its current price-to-earnings ratio is at just 20.1, putting it below many of its peers. This could indicate the stock is undervalued in this case, even with shares surging so high.

However, the stock doesn’t offer a dividend. So you’re entirely reliant on the company’s earnings in the future. That being said, those look to be quite stable and indeed growing.

All in all, Celestica stock shouldn’t be bought if you’re looking to buy and ditch it within a year. The company is a solid long-term play, especially as we continue to see high demand for semiconductor chips. That being said, a dip could also be a signal for when you might want to buy, considering shares have climbed so high. In any case, it looks like a strong stock worth considering on the TSX today.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Amy Legate-Wolfe has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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