With a recent daily gain of 4.44% and a three-month increase of 26.13%, Celestica Inc (CLS, Financial) presents an interesting case for analysis. The company boasts an Earnings Per Share (EPS) of 2.68, but the critical question remains: Is Celestica significantly overvalued? This article delves into the valuation of Celestica, encouraging readers to explore the nuances of its market position and financial health.
Company Overview
Celestica Inc offers comprehensive supply chain solutions, operating primarily through two segments: Advanced Technology Solutions (ATS) and Connectivity & Cloud Solutions (CCS). The ATS segment caters to markets like Aerospace and Defense, Industrial, Health Tech, and Capital Equipment, including businesses in semiconductor, display, and robotics equipment. Meanwhile, the CCS segment focuses on Communications and Enterprise markets, particularly in servers and storage businesses. Despite a robust operational framework, a stark contrast exists between Celestica's current stock price of $50.13 and its GF Value of $16.92, suggesting a significant overvaluation.
Understanding GF Value
The GF Value is a proprietary metric used to determine the intrinsic value of a stock, incorporating historical trading multiples, a GuruFocus adjustment factor based on past performance, and anticipated future business performance. According to this valuation method, Celestica (CLS, Financial) is currently priced well above its estimated fair value of $16.92, categorizing it as significantly overvalued. This disparity suggests that the long-term return on Celestica's stock might lag behind its future business growth.
Financial Strength and Risk Assessment
Investing in companies with robust financial strength reduces the risk of permanent capital loss. Celestica's cash-to-debt ratio stands at 0.37, which is lower than 79.77% of its peers in the Hardware industry. This metric, coupled with an overall GuruFocus financial strength rating of 7 out of 10, indicates that Celestica maintains a fair financial position, albeit with some risks due to its debt levels.
Profitability and Growth Perspectives
Celestica has demonstrated consistent profitability over the past decade, with a notable operating margin of 5.66% that surpasses 61.31% of its industry counterparts. The company's 3-year average annual revenue growth rate of 15.9% significantly outperforms 81.89% of companies in the Hardware industry, underlining its strong market position and growth potential.
Investment Efficiency: ROIC vs. WACC
An effective way to gauge a company's investment efficiency is by comparing its Return on Invested Capital (ROIC) against the Weighted Average Cost of Capital (WACC). Celestica's ROIC over the past year stands at 16.7, surpassing its WACC of 10.21, indicating efficient capital management relative to the cost of its capital.
Conclusion
While Celestica (CLS, Financial) showcases strong financial health, profitability, and growth, its current market price significantly exceeds its GF Value, suggesting an overvaluation. Investors should consider this analysis to make informed decisions. For a deeper insight into Celestica's financials, visit the 30-Year Financials here.
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This article, generated by GuruFocus, is designed to provide general insights and is not tailored financial advice. Our commentary is rooted in historical data and analyst projections, utilizing an impartial methodology, and is not intended to serve as specific investment guidance. It does not formulate a recommendation to purchase or divest any stock and does not consider individual investment objectives or financial circumstances. Our objective is to deliver long-term, fundamental data-driven analysis. Be aware that our analysis might not incorporate the most recent, price-sensitive company announcements or qualitative information. GuruFocus holds no position in the stocks mentioned herein.
