Yesterday morning, Celestica Inc. (TSX: CLS) reported another blow-out quarter. As a result, Celestica’s stock price closed off the day another 7.3% higher. This quarter tops off many quarters of exceptional growth for the company, leaving investors wondering what’s next?
Let’s review Celestica’s quarter and outlook.
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Earnings strength
As you’re probably aware, Celestica has had many quarters of better-than-expected results in the last few years. In the company’s third quarter which was released yesterday, earnings per share (EPS) came in at $1.58 versus $1.04 in the same period last year and versus expectations that were calling for EPS of $1.47. The earnings result was 52% higher than last year and 7.5% above expectations.
It’s fair to say that the momentum at Celestica is accelerating. In fact, given management’s outlook for the fourth quarter of 2025, the company is on track to deliver its strongest performance on record. Let’s review this Q4 outlook.
- Revenue of between $3.325 billion and $3.575 billion, for a 37% growth rate at the midpoint
- Adjusted EPS of $1.65 to $1.81 for a 62% growth rate at the midpoint
- Operating margin of 7.6%, up 80 basis points versus last year
Accelerating momentum
Celestica’s growth rates show a clear acceleration, driven by exceptionally strong demand in data centre networking. In fact, Celestica’s Connectivity and Cloud Solutions (CCS) segment saw its revenue increase 43%, with the communications end market revenue increasing 82%. Simply put, hyperscaler demand continues to soar, and AI infrastructure investment looks forward to a multi-year growth profile ahead of it. This segment accounts for 76% of Celestica’s total revenue.
As a result of this accelerating momentum, the company has once again increased its guidance for the year. The updated guidance for 2025 is as follows:
- Revenue growth of 26% to $12.2 billion (up from prior guidance of $11.55 billion)
- EPS of $5.90 (up from $5.50), for a 52% growth rate
- Free cash flow of $425 million (up from $400 million)
Celestica’s valuation
At this point, it’s clear to see that the momentum at Celestica is really a once-in-a-lifetime thing. Accordingly, Celestica’s stock price has reflected this extremely bullish business environment. In fact, Celestica’s stock price has risen 238% year-to-date, 2,900% in the last three years, and 5,470% in the last five years.
Of course, this kind of stock price action always leads us to the question of valuation. Is Celestica’s stock now overvalued, or is it still a buy even after this run-up? Well, we covered the business side of things, and we saw that the momentum is accelerating and things are going incredibly well. Now let’s see what Celestica’s stock price is valued at.
As of yesterday’s close, the stock is trading at 58 times this year’s expected earnings, 45 times next year’s expected earnings, and 32 times 2027 expected earnings. Back in the summer, I concluded that the stock still had a lot of upside, as its valuation was still attractive. Today, with these valuation multiples, I would be more hesitant to buy Celestica.
The bottom line
While I still really like Celestica’s business performance and outlook, I would probably wait to establish a position in the stock. I feel like the valuation may have gotten ahead of itself, and I would rather wait for better levels. In fact, I have been paring down my position in Celestica recently due to this concern.
