Celestica (TSX:CLS): Evaluating Valuation After Record Q2 Results and Surging Hyperscaler Demand

Celestica (TSX:CLS) just delivered its strongest Q2 results in more than two years, sparking considerable investor debate. The key driver was a sharp increase in demand from hyperscalers, indicating that Celestica’s tech and supply chain solutions are capturing attention from major industry players. Analysts note management’s conservative guidance, leading some to question whether the recent upside is just the beginning. This performance brings valuation considerations to the forefront for anyone evaluating their next steps.

Looking at the broader picture, Celestica’s stock has significantly outperformed most tech peers this year, with total returns nearing 280% over the past 12 months. The company’s stable margins, rapidly expanding revenue, and consistently increasing earnings estimates have contributed to this momentum. Additional factors such as rising insider ownership and a more robust revenue mix further highlight Celestica’s ongoing operational improvements and increased market confidence.

Given this strong performance, the central question now is whether Celestica remains reasonably priced, or if the market has already accounted for all anticipated growth. Here is a closer look at the numbers.

Most Popular Narrative: 16% Undervalued

According to community narrative, Celestica is considered undervalued by 16% based on consensus analyst expectations for its future earnings growth and profit margins, along with other risk factors, using a discount rate of 7.25%.

“Accelerated demand for advanced networking and AI infrastructure by hyperscaler customers is driving rapid growth in Celestica's CCS segment, with multiple new 800G and upcoming 1.6T program ramps. This supports robust revenue expansion and greater operating leverage over the next 12 to 24 months.”

The market sees something big on the horizon, but it’s not just hype. A sharp focus on next-generation technology, bold future revenue leaps, and richer margins are at the core of this bullish thesis. Want to know exactly which specific assumptions propel the fair value target much higher than today’s share price? Unlock these details to see what could be fueling Celestica’s next stage of growth.

Result: Fair Value of $311.34 (UNDERVALUED)

Have a read of the narrative in full and understand what's behind the forecasts.

However, significant revenue concentration among top customers, as well as potential slowdowns in hyperscaler investments, could challenge Celestica’s anticipated growth trajectory.

Find out about the key risks to this Celestica narrative.

Another View: Looking at the Market Multiple

While community consensus argues Celestica is undervalued, a look at its price versus industry peers tells a different story. The company is currently priced higher than the industry average. Could the momentum justify this premium?

See what the numbers say about this price — find out in our valuation breakdown.

Simply Wall St performs a discounted cash flow (DCF) on every stock in the world every day (check out Celestica for example). We show the entire calculation in full. You can track the result in your watchlist or portfolio and be alerted when this changes, or use our stock screener to discover undervalued stocks based on their cash flows. If you save a screener we even alert you when new companies match - so you never miss a potential opportunity.

Build Your Own Celestica Narrative

If you have a different perspective or prefer to investigate the numbers yourself, you can craft your own Celestica narrative in just a few minutes. do it your way.

A good starting point is our analysis highlighting 2 key rewards investors are optimistic about regarding Celestica.

Looking for More Ways to Unlock Opportunity?

Don’t let a single stock define your investing journey. Move a step ahead by identifying more companies built for long-term growth, promising value, and innovative themes. With the right ideas, you could uncover tomorrow’s winners before the crowd. Don’t miss out on these smart shortcuts to deeper insight:

• Find high-yielding opportunities by checking out dividend stocks with yields over 3% through the dividend stocks with yields > 3%.
• Spot emerging industry leaders in the fast-moving world of healthcare artificial intelligence by exploring the latest healthcare AI stocks.
• Focus on undervalued gems by putting the power of our cash flow insights to work with the undervalued stocks based on cash flows.

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com