The escalating conflict in the Middle East and rising oil and natural gas prices following Iran’s closure of the Strait of Hormuz—a critical route that typically handles about 20% of global oil supply—have unsettled investors and triggered volatility in equity markets. Reflecting this uncertainty, the S&P/TSX Composite Index has pulled back 7.5% from its recent highs.
However, long-term investors should avoid getting caught up in short-term market swings. Instead, periods of volatility can offer attractive opportunities to accumulate high-quality stocks at relatively better valuations, positioning portfolios for stronger long-term returns. Growth stocks, in particular, represent companies capable of expanding their revenues and earnings faster than the broader market, which can translate into outsized gains over time.
That said, these stocks often command premium valuations and carry elevated risk due to the evolving nature of their business models. As a result, they are generally better suited for investors with a higher risk tolerance and a long-term investment horizon.
Against this backdrop, Celestica (TSX:CLS) stands out as a compelling growth stock that you could consider investing $500 in right now. Let’s take a closer look at its recent performance, future growth prospects, and valuation.
Source: Getty Images
Celestica’s fourth-quarter performance
Earlier this year, Celestica delivered a strong fourth-quarter performance, with revenue rising 43.1% year over year to $3.65 billion, surpassing its guidance. Robust growth in its Connectivity & Cloud Solutions (CCS) segment more than offset a modest 1% decline in the Advanced Technology Solutions (ATS) segment, driving overall topline expansion. Within CCS, the Hardware Platform Solutions (HPS) business was a standout, with revenue surging 72% to $1.4 billion, helping lift total CCS segment revenue to $2.86 billion—up 64% from the prior year.
The company also improved its profitability, with adjusted operating margins expanding from 6.8% to 7.7%. Earnings growth was equally impressive, with reported EPS (earnings per share) of $2.31. After adjusting for one-time items, EPS came in at $1.89, marking a 70.3% increase year over year and exceeding management’s guidance range of $1.65 to $1.81.
Additionally, Celestica generated $155.9 million in free cash flow during the quarter and repurchased 0.1 million shares for $35.7 million, reflecting its solid cash generation and shareholder-friendly approach. Let’s now take a closer look at its growth prospects.
Celestica’s growth prospects
As businesses transition from pilot artificial intelligence (AI) initiatives to integrating AI across core operations—and as individuals increasingly adopt AI-powered tools—the demand for computing power has surged. In response, hyperscalers are accelerating their data centre investments, creating compelling long-term growth opportunities for Celestica. To capitalize on this trend, the company is enhancing its manufacturing capabilities, developing innovative solutions, and forming strategic partnerships.
Celestica is expanding its U.S. manufacturing footprint to meet rising demand for next-generation AI infrastructure. This expansion, expected to be completed next year, should strengthen its ability to support key customers with advanced data centre solutions for future AI applications. Additionally, the company has outlined a $1 billion capital investment plan for this year to broaden its global presence and deliver high-reliability manufacturing, advanced design engineering, and end-to-end supply chain services.
Supported by these initiatives and a rapidly expanding addressable market, Celestica’s management has raised its 2026 outlook. The company now expects revenue to grow 37.2% to $17 billion, while adjusted earnings per share could increase 44.6% to $8.75. Overall, its growth outlook remains strong and well-supported by industry tailwinds.
Investors’ takeaway
Despite its solid fundamentals and healthy growth prospects, Celestica has been under pressure over the last few weeks amid concerns over a potential “AI bubble,” driven by elevated valuations and heavy capital spending across the sector. The company has lost around 24% of its stock value from its 52-week high and is down over 4% year to date. Amid the pullback, its next-12-month price-to-sales multiple has declined to 1.9, making it an excellent buy at these levels.
