In the years of the artificial intelligence ramping up, companies like Celestica Inc. (TSX:CLS) have been booming. In fact, Celestica’s stock price is hitting new highs and has rallied almost 400% in the last year alone. This has led some investors like me to question how long this rally will last and whether it’s too late to establish a position today.
Without further ado, let’s take a look at why Celestica and its stock price are likely to see continued momentum in the years ahead.
Celestica reports continued momentum
Strong revenue growth, margins, and earnings growth have characterized Celestica’s results in the last few years. In the last five years, the company’s revenue increased 68% to $9.6 billion. Also, its earnings per share (EPS) have increased 725% to $3.88 in 2024.
Celestica’s latest quarter was just another in its string of strong quarters. Revenue increased 21% to $2.89 billion, and adjusted EPS increased 54% to $1.39. This was driven by strength in the company’s “Connectivity and Cloud Solutions,” or CCS segment, where strong hyperscaler demand persists as artificial intelligence infrastructure builds.
I’d like to highlight Celestica’s strong record in increasing profitability, margins, and returns. In its latest quarter, the company generated an operating margin of 7.4%, which was a 110 basis-point increase compared to a year ago. Also, Celestica generated a return on invested capital, or ROIC, of 35.5%, which compares to a ROIC of 26.6% just one year ago.
Celestica stock goes ballistic
Based on these results, as well as the company’s growth potential, Celestica’s stock has skyrocketed. As you can see from the stock price graph below, returns have been pretty astronomical.
Just five years ago, Celestica’s shares were trading below $10. Today, they are trading at approximately $340 for a 3,600% return! Recognizing that this kind of return has many of us wondering if it’s too late to buy the stock, let’s look at more facts to help us answer this question.
Revenue and earnings growth = value added
We’ve discussed the strong demand and revenue growth that Celestica has been seeing. We’ve also touched upon the sharp increase in profitability and returns. It is this combination that makes Celestica’s story all the more interesting. The value-added here goes beyond the surface-level revenue numbers. It touches all stakeholders, putting real value and real money in their pockets.
The latest quarter saw free cash flow generated of $120 million. Year to date, the free cash flow number rises to $214 million. Finally, the company has a solid balance sheet, with access to capital to fund its growth initiatives, AND has been repurchasing shares this year.
Still, after the sharp rise in the stock price, let’s make sure that the valuation remains reasonable given the company’s earnings and outlook. Celestica’s stock trades at 61 times this year’s expected earnings, 51 times next year’s expected earnings, and 42 times 2027’s expected earnings. This is high and is clearly assuming a lot of growth.
Looking ahead
Is this realistic, or has valuation gotten ahead of itself?
The momentum is continuing at Celestica, and this is demonstrated in the fact that the company once again increased its 2025 guidance at its last earnings release. This comes after many quarters of better-than-expected results and many quarters of sustained momentum. The artificial intelligence ramp-up is continuing, and AI infrastructure investment looks forward to a multi-year growth profile ahead of it.
The bottom line
While it does appear that Celestica’s stock is expensive at this time, I think that the momentum and value creation justify this to some extent. At the same time, I own shares and have taken some profits. Finally, if I wanted to establish a new position in Celestica, I would be patient and buy on weakness.
