Should You Rethink Celestica After a 205.9% Surge and Recent Analyst Upgrades?

• If you are wondering whether now is a good time to buy, sell, or simply watch Celestica, you are not alone. Plenty of investors are trying to figure out if the stock is still a bargain after its meteoric rise.
• Celestica's price has leapt an eye-popping 205.9% year-to-date, with a staggering 262.4% gain over the last 12 months. However, after a recent 17.9% run in the past month, it abruptly slid 14.7% in just the past week.
• Investors have been buzzing after Celestica was spotlighted in multiple analyst upgrades and industry news stories that flagged growing demand for tech manufacturing and AI-related services. These headlines have driven both optimism about its future and raised fresh questions about how long these momentum surges can continue.
• Despite all the excitement, Celestica only scores 2/6 on our undervaluation checks. There is plenty to dig into around how the market is pricing this stock and why traditional valuation approaches might not tell the full story. Stay tuned for a smarter take on valuation at the end of the article.

Celestica scores just 2/6 on our valuation checks. See what other red flags we found in the full valuation breakdown.

Approach 1: Celestica Discounted Cash Flow (DCF) Analysis

The Discounted Cash Flow (DCF) model estimates a company's intrinsic value by forecasting its future free cash flows and discounting them back to their present value. This approach gives investors a sense of what the business may be worth based on expected cash generation rather than market hype.

According to the latest DCF analysis, Celestica generated $379.5 Million in free cash flow over the last twelve months. Analyst forecasts suggest steady growth, projecting free cash flow to reach $651 Million by 2028. Beyond that, ten-year cash flow projections, partly based on analyst estimates and partly extrapolated, suggest a continued upward trend.

This valuation model arrives at an intrinsic value of $146.51 per share for Celestica. However, compared to the current stock price, this means the shares are trading at a 180.3% premium to their DCF-calculated worth.

In simple terms, the DCF analysis signals that the market is pricing Celestica well above what its projected cash flows support right now.

Result: OVERVALUED

Our Discounted Cash Flow (DCF) analysis suggests Celestica may be overvalued by 180.3%. Discover 876 undervalued stocks or create your own screener to find better value opportunities.

Head to the Valuation section of our Company Report for more details on how we arrive at this Fair Value for Celestica.

Approach 2: Celestica Price vs Earnings

For profitable companies like Celestica, the Price-to-Earnings (PE) ratio is often the preferred method of valuation. This metric compares a company’s share price to its annual earnings per share, providing investors with a quick sense check of how much the market is willing to pay for each dollar of profits.

The right or “fair” PE ratio for a stock is influenced by expectations of future earnings growth and the degree of risk involved. Companies with higher growth prospects and lower risks typically command a higher PE. In contrast, slower growers or riskier businesses tend to trade at lower multiples.

Currently, Celestica trades at a PE of 47x, which is above the industry average of 27x and also ahead of its peer group average of 31x. This signals that investors are paying a premium for Celestica’s earnings, possibly anticipating robust growth or future profitability.

To give a more nuanced estimate, Simply Wall St’s proprietary Fair Ratio for Celestica stands at 52x. This figure is calibrated specifically for Celestica, taking into account its unique mix of earnings growth, industry factors, profit margins, market size, and risk profile. Unlike generic peer or sector averages, the Fair Ratio offers a tailored benchmark that reflects what investors might reasonably expect to pay for a business like Celestica at this time.

Since Celestica’s current PE ratio of 47x is within 0.10 of its Fair Ratio of 52x, this suggests the shares are priced about right on an earnings basis.

Result: ABOUT RIGHT

PE ratios tell one story, but what if the real opportunity lies elsewhere? Discover 1402 companies where insiders are betting big on explosive growth.

Upgrade Your Decision Making: Choose your Celestica Narrative

Earlier we mentioned that there is an even better way to understand valuation, so let's introduce you to Narratives. A Narrative is your story—your unique view of where Celestica is heading and what it should be worth, shaped by your expectations for its revenue, earnings, and profit margins. Narratives link the company’s business story to a financial forecast and then to a fair value, giving context and meaning to the numbers. On Simply Wall St’s Community page, millions of investors can easily create or follow Narratives, seeing in real-time how emerging news or fresh earnings updates automatically adjust each Narrative’s fair value estimate.

Narratives empower you to make smarter buy or sell decisions. If your Narrative’s fair value is higher than the current price, it suggests an opportunity; if lower, it might be time to reconsider. For example, some investors see Celestica as an AI and infrastructure leader, forecasting high earnings and assigning fair value as steep as $565.81 per share. Others remain cautious due to customer concentration or margin risks, with estimates closer to $311.34. Narratives make these stories and assumptions visible, helping you benchmark your view and make more confident investing decisions.

Do you think there's more to the story for Celestica? Head over to our Community to see what others are saying!

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.

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