Celestica Stock Appears To Be Fairly Valued
- By GF Value
The stock of Celestica (NYSE:CLS, 30-year Financials) is believed to be fairly valued, according to GuruFocus Value calculation. GuruFocus Value is GuruFocus' estimate of the fair value at which the stock should be traded. It is calculated based on the historical multiples that the stock has traded at, the past business growth and analyst estimates of future business performance. If the price of a stock is significantly above the GF Value Line, it is overvalued and its future return is likely to be poor. On the other hand, if it is significantly below the GF Value Line, its future return will likely be higher. At its current price of $8.45 per share and the market cap of $1.1 billion, Celestica stock is estimated to be fairly valued. GF Value for Celestica is shown in the chart below.
Because Celestica is fairly valued, the long-term return of its stock is likely to be close to the rate of its business growth, which averaged 1.8% over the past five years.
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Since investing in companies with low financial strength could result in permanent capital loss, investors must carefully review a company's financial strength before deciding whether to buy shares. Looking at the cash-to-debt ratio and interest coverage can give a good initial perspective on the company's financial strength. Celestica has a cash-to-debt ratio of 0.79, which ranks in the middle range of the companies in Hardware industry. Based on this, GuruFocus ranks Celestica's financial strength as 6 out of 10, suggesting fair balance sheet. This is the debt and cash of Celestica over the past years:
Companies that have been consistently profitable over the long term offer less risk for investors who may want to purchase shares. Higher profit margins usually dictate a better investment compared to a company with lower profit margins. Celestica has been profitable 10 over the past 10 years. Over the past twelve months, the company had a revenue of $5.7 billion and earnings of $0.48 a share. Its operating margin is 2.62%, which ranks in the middle range of the companies in Hardware industry. Overall, the profitability of Celestica is ranked 8 out of 10, which indicates strong profitability. This is the revenue and net income of Celestica over the past years:
Growth is probably one of the most important factors in the valuation of a company. GuruFocus' research has found that growth is closely correlated with the long-term performance of a company's stock. If a company's business is growing, the company usually creates value for its shareholders, especially if the growth is profitable. Likewise, if a company's revenue and earnings are declining, the value of the company will decrease. Celestica's 3-year average revenue growth rate is in the middle range of the companies in Hardware industry. Celestica's 3-year average EBITDA growth rate is 9.1%, which ranks in the middle range of the companies in Hardware industry.
Another way to look at the profitability of a company is to compare its return on invested capital and the weighted cost of capital. Return on invested capital (ROIC) measures how well a company generates cash flow relative to the capital it has invested in its business. The weighted average cost of capital (WACC) is the rate that a company is expected to pay on average to all its security holders to finance its assets. We want to have the return on invested capital higher than the weighted cost of capital. For the past 12 months, Celestica's return on invested capital is 5.85, and its cost of capital is 12.54. The historical ROIC vs WACC comparison of Celestica is shown below:
Overall, The stock of Celestica (NYSE:CLS, 30-year Financials) shows every sign of being fairly valued. The company's financial condition is fair and its profitability is strong. Its growth ranks in the middle range of the companies in Hardware industry. To learn more about Celestica stock, you can check out its 30-year Financials here.
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This article first appeared on GuruFocus.
