Even as macroeconomic uncertainties have kept the Canadian stock market largely volatile in the last few years, some fundamentally strong stocks with solid financial growth trends have continued to outperform the broader market by a wide margin. One such stock is Celestica (TSX:CLS), a Toronto-based manufacturing firm that makes hardware platforms and supply chain solutions.
Celestica has been delivering impressive financial results in recent quarters, driven by its diversified revenue streams and strong operational execution. These are some of the key reasons why CLS stock has surged more than 450% in the last three years to currently trade at $50.86 per share with about $7 billion in market capitalization.
But can Celestica stock maintain its momentum and deliver even higher returns in the next three years? Let’s take a closer look at the factors that could influence its future performance.
A quick look at Celestica’s financials
In the last two years, Celestica’s financials have strengthened significantly due mainly to growing demand for its Connectivity and Cloud Solutions (CCS). In the quarter ended in December 2023, its CCS segment revenue rose about 10%, helping the company deliver a 5% YoY (year-over-year) increase in its total revenue. The profitability also improved as its CCS segment operating margin expanded to 6.7% in the last quarter from 5.9% a year ago. With this, its adjusted quarterly earnings jumped 35.7% YoY to US$0.76 per share, beating Street analysts’ estimates of US$0.68 per share.
As Celestica’s bottom line continues to exceed analysts’ expectations, its adjusted annual earnings in the five years between 2018 and 2023 have gone up by 127% with the help of a 20% increase in its annual revenue.
These growth trends could accelerate further
Celestica has a geographically well-diversified business model. The company is focusing on increasing its sales in areas where it has strong expertise by working on projects from start to finish. It has set a goal to grow its lifecycle solutions sales by 10% every year over the long term, reflecting its commitment to getting involved in more profitable and exciting projects.
Another main way Celestica plans to grow is by investing in new and different capabilities that take advantage of ongoing changes and needs in the market. Its decades-long experience in providing customer-centric engineering solutions to the tech industry gives it an edge over the competition, making it a very attractive stock for people looking to invest in a company that is part of the technology and manufacturing world.
Where will CLS stock be in three years?
While it’s nearly impossible to know where exactly Celestica stock will be three years from now, we can make some reasonable assumptions based on the company’s past performance and future plans. Besides its solid financial growth trends, Celestica’s growth strategy primarily focuses on increasing operation efficiency and expanding its presence in the high-growth segments, which also offer higher margins and more stability than the traditional consumer electronics market. Given that, I wouldn’t be surprised if CLS stock yields even higher returns in the next three years than it did in the past.
