The Canadian stock market is full of surprises, but some companies manage to defy even the most optimistic expectations. This is one of the key reasons why long-term Foolish investors are always on the lookout for exceptional growth stories. One such company is Celestica (TSX:CLS), a Toronto-headquartered manufacturing company with a market cap of $7.8 billion.
Celestica’s stock price has soared by a staggering 556% in the past three years from $10.06 per share to $66.04 per share, outperforming the broader market and its peers by a wide margin. By comparison, the TSX Composite benchmark has gained only 15.6% in these three years.
What is behind Celestica stock’s remarkable performance, and could it continue soaring? Let’s take a closer look.
Factors behind Celestica stock’s solid performance
If you don’t know it already, Celestica focuses on providing contract manufacturing and supply chain solutions to businesses across the globe. Its diversified customer base includes companies from various industries, including aerospace and defence, cloud, smart energy, communications, health tech, industrial, and semiconductor. Based on its 2023 financial figures, the company generated nearly 58% of its total revenue from its Connectivity & Cloud Solutions segment, while the remaining 42% came from its Advanced Technology Solutions segment.
One of the main reasons behind Celestica stock’s solid performance in recent years could be its consistently improving financial growth trends. To give an idea about that, the company’s total revenue has risen 20% in the last five years from US$6.6 billion in 2018 to US$8 billion in 2023.
More importantly, the company has managed to significantly expand its profitability over these years. Celestica reported an adjusted net profit of $292.3 million last year, up 95% compared to its adjusted annual net profit of US$149.8 million in 2018. Despite facing several operational challenges due mainly to the global pandemic and macroeconomic weakness, the company’s adjusted net profit margin also expanded from 2.3% to 3.7% in these five years.
Could CLS stock continue soaring?
Clearly, Celestica has shown its ability to grow its earnings and margins even amid challenging economic environments. In the first quarter of 2024, the company’s total revenue growth rate jumped to 20.2% YoY (year-over-year) from just 4.8% YoY in the previous quarter. Similarly, its adjusted quarterly earnings in the latest quarter increased by a solid 83% YoY, at a much higher rate compared to 35.7% YoY in the previous quarter. Besides its accelerated financial growth, Celestica also displayed robust cash-generation capabilities last quarter, with an adjusted free cash flow of US$65.2 million in the first quarter of 2024, a substantial increase from just US$9.2 million a year ago.
Its robust financial performance in the first quarter encouraged the company’s management to raise its 2024 full-year outlook. The company now anticipates revenue to reach $9.1 billion in 2024, reflecting a 14% YoY growth as it expects to benefit from the planned acquisition of NCS Global Services, which should help it expand Celestica’s service offerings in IT (Information Technology) infrastructure and asset management segments. Moreover, Celestica’s consistent focus on innovation and efficiency with robust supply chain and manufacturing capabilities brightens its long-term growth outlook, which could help its stock continue soaring.
