The TSX30 just came out, and it should come as no surprise that number one on that list was Celestica (TSX:CLS). Yet even though you might be familiar with the name thanks to its rising run, investors may not actually realize what’s behind the growth. Today, let’s look at that soaring run, and more importantly, whether it can continue into 2026.
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What happened?
CLS stock is an electronics manufacturing service (EMS) and hardware platform company. It designs, builds, and supports complex products for customers. These include communications, cloud and data centres, aerospace, defence, health technology, industrial, and capital equipment, among others.
It’s clear, then, why shares have soared. CLS stock has seen massive demand for its services, particularly for infrastructure and cloud and data centres. This led to rapid revenue growth of 21% year over year in the second quarter, with huge growth in connectivity and cloud services. What’s more, management raised its full-year guidance for revenue, adjusted earnings per share (EPS) and free cash flow.
Diving in
While earnings look pretty great, we need to dive in deeper to make sure fundamentals support a further growth story. There are several clear reasons in this case why CLS stock could continue its run. Second-quarter results showed durable top-line momentum, as well as operating leverage. Revenue outpaced costs, and this drove higher gross and adjusted operating margins. The guidance was also solid, hitting $11.55 billion in revenue.
The balance sheet is also notable, with cash generation respectable for an EMS. The tech stock holds positive operating cash flow, substantial free cash flow year to date, and ongoing share repurchases for shareholders. And its position as support for hyperscalers, cloud providers and communications is solid, giving it direct exposure to secular trends.
What to watch
Now, it’s not perfect. In fact, the further success of CLS stock looks already priced in. The company currently holds a high price-to-earnings ratio and a high price-to-book multiple. Therefore, any slowdown in demand or margin reversion could see a huge drop in share price. The business also remains somewhat cyclical, with heavy reliance on a few large customers. This increases volatility and negotiating risk.
Then there’s the macro picture. Tariffs, trade restrictions, or supply-chain disruptions could all raise costs or delay growth. So, investors should keep watching the stock for now and perhaps consider it on a bit of a dip rather than buying at such high prices.
Bottom line
CLS stock is a well-positioned company on the rise, connected to strong trends in the markets as well as a solid balance sheet. However, the price of its recent and future growth already looks priced into the stock. Therefore, there are high expectations that could cause the company to dip in share price should it miss even slightly. That’s why it’s always best to discuss any investment with your financial advisor before making purchases, considering an investor’s risk tolerance, goals, and overall portfolio before buying.
