Celestica stock is up 125% in 12 months: more upside ahead?

Celestica stock has done well in the past few years, helped by the ongoing artificial intelligence (AI) boom. Its US stock has jumped by 125% in the last 12 months and by over 4,500% in the last five years. Its $40 billion valuation has made it one of the biggest Canadian companies.

Celestica stock has jumped amid strong growth

CLS stock has been in a strong uptrend in the last 12 months as its role in the AI industry has become pronounced. Its top clients like Amazon, Google, Meta Platforms, Dell, and HP Enterprise are spending hundreds of billions of dollars in capital expenditure. 

Data shows that the number of data centers in the US has soared to 4,497 in the past few years. Most of these centers are in Virginia, Texas, and California. 

Celestica is a key player in the industry because it helps companies design and manufacture electronic systems and manufactures components like server components, networking equipment, and power systems. 

Being a key player in this business has pushed its revenue sharply higher, with the management predicting that it has more upside to go. Its recent results showed that its revenue jumped by 53% in Q1 to $4.05 billion, inside its guided range of between $3.85 billion and $4.1 billion. 

At the same time, the company said that its gross margin has jumped to 10.8% after having a negative margin of 0.5% in the same period last year. Most of its revenue is in its Connectivity and Cloud Solutions (CCS), which made $3.24 billion, while its Advanced Technology Solutions (ATS) made $806 million.

READ MORE: What is the next sector that can benefit from AI boom? Nvidia offers a clue

Growth to accelerate, justifying the valuation

Most importantly, analysts are optimistic that Celestica’s growth will accelerate because of its AI boom. The average estimate among analysts is that its revenue in Q2 jumped by 51% to $4.3 billion. It is then expected to make $5 billion in Q3, up by 56% YoY. 

For the year, analysts expect the results to show that its revenue will grow by 54% to $19.1 billion. It will then make over $26.8 billion next year. Looking at its recent history, Celestica has done better than estimates, meaning that its revenue and earnings will likely be better than estimates.

These numbers may help to justify its valuation. Data shows that it has a forward PE ratio of 37, higher than the sector median of 33. It is also a more expensive company than Nvidia. Its multiples are also higher than the five-year average of 23.

CLS stock price technical analysis

Celestica stock chart | Source: TradingView

The daily chart shows that the Celestica’s shares have pulled back in the past few days, mirroring the performance of other AI names. It has retreated from a high of $473.40 to the current $352.

The stock has dropped below the 50-day moving average, confirming a bearish breakout. It has also formed a head-and-shoulders-like pattern with a neckline at $326. Also, the Percentage Price Oscillator (PPO) have continued falling. 

Therefore, the stock will likely remain under pressure in the near term, and then rebound over time. This may see it dropping to the key support of $243.