Up 80% This Year What's Next For Celestica Stock?

Forbes

29-07-2025

CHONGQING, CHINA - JULY 27: In this photo illustration, a person holds a smartphone displaying the ... More logo of Celestica Inc. (NYSE: CLS, TSX: CLS), a Canadian multinational electronics manufacturing services (EMS) company, with the company's red and gray dot-matrix C logo visible in the background, on July 27, 2025 in Chongqing, China. (Photo illustration by)
Celestica (NYSE:CLS) has recently been experiencing significant growth — the stock has risen 80% year-to-date and has more than tripled in value over the past year. What factors are contributing to this increase? The company, recognized for its electronics manufacturing and supply chain services, is benefiting from a surge in demand for AI-powered networking equipment and cloud infrastructure, driven by major technology companies. This upswing is spurring rapid expansion in its Connectivity & Cloud Solutions (CCS) division — a segment that encompasses everything from servers and storage to high-performance networking hardware. In Q1 2025, CCS revenue reached $1.84 billion, an increase of 28% compared to the previous year. The key AI-related offerings within this segment include servers, integrated rack solutions, and high-performance networking switches, all of which are essential for modern AI workloads.
The extensive AI boom is projected to maintain demand. Major technology firms are currently engaged in unprecedented cycles of infrastructure investment. Amazon is anticipated to allocate as much as $105 billion for capital expenditures in 2025. Microsoft, Alphabet, and Meta are estimated to invest $80 billion, $75 billion, and $72 billion, respectively — much of this directed towards AI infrastructure. This trend should bolster demand for Celestica. How does the stock's fundamental outlook appear, and will its momentum continue?
The stock appears relatively expensive — making it a costly choice to purchase at its current price of around $170. We identify some minor concerns regarding CLS stock. Our conclusion is derived by comparing the current valuation of CLS stock with its operational performance in recent years, in addition to its current and historical financial status. Our assessment of Celestica along crucial metrics of Growth, Profitability, Financial Stability, and Downturn Resilience indicates that the company possesses a strong operational performance and financial health, as outlined below. However, if you are looking for potential gains with reduced volatility compared to individual stocks, the Trefis High Quality portfolio offers an alternative — having outperformed the S&P 500 and yielded returns exceeding 91% since its inception. Also see: QuantumScape: QS Stock To $0?
Is the High Valuation Justified by Growth?
Celestica's valuation seems high when assessed against the wider market. While its price-to-sales (P/S) ratio of 2.0 is less than the S&P 500's 3.1, its price-to-earnings (P/E) ratio of 47.8 is considerably higher than the benchmark's 22.8. Nevertheless, this is supported by the company's robust recent top-line growth. Revenues have risen at an average annual rate of 19.3% over the past three years, significantly surpassing the S&P 500's 5.3%. Over the last year, Celestica's Revenues increased by 21% to reach $10 billion, while the S&P 500 only managed a modest growth of 4.4%.
However, its profitability remains behind. The net income margin over the past year was only 4.1% (compared to 11.9% for the S&P 500). Nonetheless, operating performance is showing positive trends, with Celestica achieving a record adjusted operating margin of 7.1% in the latest quarter, up from 5.9% in Q1 2024. This upward margin trend and strong revenue should, in time, lead to higher earnings, potentially justifying the company's elevated valuation.
From a financial health perspective, Celestica appears robust, with a low debt-to-equity ratio of 4.8%, comfortably below the S&P 500 average of 22.6%. The company maintains a moderate cash reserve that constitutes 5.2% of its total assets. However, CLS stock has historically demonstrated sensitivity to market downturns. For example, during the Covid-19 market crash, CLS plummeted 69% compared to a 33.9% drop in the S&P 500. Likewise, in 2022, amid inflation-related shocks, the stock fell 35.6% during a broader market correction, exceeding the S&P's 25.4% decline. Additional risks also exist. The company has a significant manufacturing presence in Asia (approximately two-thirds of production), and tariffs imposed by the U.S. government may elevate supply chain costs and exert pressure on profit margins.
The high valuation of CLS stock may restrict its upside potential in the near to mid-term. As an alternative, the Trefis Reinforced Value (RV) Portfolio, which has outperformed its all-cap stocks benchmark (combination of the S&P 500, S&P mid-cap, and Russell 2000 benchmark indices), has produced strong returns for investors. Why is that? The quarterly rebalanced mix of large-, mid-, and small-cap RV Portfolio stocks provided an effective strategy to capitalize on favorable market conditions while mitigating losses during market downturns, as detailed in RV Portfolio performance metrics.