Celestica Inc. (TSX:CLS) has been public since 1998, when it completed what was the largest tech IPO in Canadian history at that time. Since then, a lot has happened to Celestica and the industry, as artificial intelligence has been gathering momentum and investment. But it was only recently that Celestica stock has risen to the same heights as back in the dot-com bubble frenzy.
Let’s take a look at where Celestica stock is today and what we can expect going forward.
Celestica stock – a history of transformation
Most tech stocks skyrocketed in the dot-com era. This was true regardless of a company’s true value, business model, or strategy. They were all taken up with the rest. At that time, Celestica’s stock peaked at more than $104.
This was the year 2000. Then the market crash hit all, but while many tech stocks rose again, Celestica floundered pretty much below $20 for many, many, years. Until last year, when Celestica stock began to rise from the ashes.
Since the end of 2022, Celestica’s stock price has increased 540%. In the last five years, it has increased 950%. As you can see from the chart below, Celestica’s rise has been decidedly quick and easy. This was the result of the company’s transformation.
What happened?
In the beginning, Celestica was simply an electronic manufacturing services (EMS) company that specialized in manufacturing parts for its customers such as Cisco Systems and Dell. This has always been a useful, although low margin part of the chain. With no value-added above manufacturing services, the business was a low margin, commoditized one.
While Celestica was well regarded for its operational excellence and reliability, new management wanted more. So, they embarked on a plan to build a better business that’s focused on value-added services and innovation to drive margins and growth.
As a result, Celestica began to focus on becoming more involved in the early stages of product design, thereby adding value to customers through innovation. In 2023, Celestica generated an operating margin of 6%, and its free cash flow was just under $200 million. This compares to an operating margin of roughly 3% in 2014, and free cash flow of roughly $100 million.
Momentum continues at Celestica
It’s not only Celestica’s changed strategy that has given it a boost. It’s the booming artificial intelligence (AI) industry that has also given the company a big boost. This is showing up as soaring demand for Celestica’s network switches, for example.
Celestica’s “Connectivity and Cloud Solutions” (CCS) segment is benefiting enormously from this AI boom. Revenues in this segment have grown 39% in 2024 and at a 25% compound annual growth rate (CAGR) in the last three years. This, as hyperscaler demand continues to soar and artificial infrastructure investment looks forward to a multi-year growth profile ahead of it.
Overall, in Celestica’s latest quarter, the company posted $2.5 billion in revenue. This was 22% higher than last year and above expectations. Furthermore, earnings per share (EPS) came in at $1.04, 60% higher than last year. Finally, Celestica achieved a very impressive return on invested capital (ROIC) of 29%.
The bottom line
The booming demand for artificial intelligence is driving unprecedented demand for Celestica’s products and services. This, along with the company’s rising profitability and returns, leaves this tech stock well-positioned to continue to perform well in the years ahead.
