It's time to take some profits in this high-flying Canadian tech stock

Globe and Mail

8 hours ago

It has been a mediocre year for Canadian tech stocks. The S&P/TSX Information Technology index is ahead only 8.31 per cent year to date, less than the TSX Composite.
Our biggest tech company, Shopify (SHOP-T), is doing somewhat better, with a gain of about 14 per cent so far in 2025. But that's well off the pace of last year's 48 per cent gain. Constellation Software (CSU-T) is up about 12 per cent year-to-date, also well short of its pace last year when it gained 35 per cent. Another 2024 high-flyer, Descartes Systems (DSG-T), which specializes in providing solutions for import/export businesses, is down almost 12 per cent as global trade slows in the face of Donald Trump's tariff blitz.
There is one major exception to these disappointing results. Shares in Celestica (CLS-T) continue their strong uptrend, now in its third year. The stock had traded in the $5 to $15 range from 2005 to the spring of 2023. Then it suddenly took off, posting gains of 154 per cent in 2023 and 242 per cent in 2024. So far this year, it's up about 66 per cent.
I added Celestica to my Internet Wealth Builder recommended list in November 2023 at $38.46. At that point, the p/e ratio was a very reasonable 16.72. The shares closed Friday at $219.79, up 471 per cent from our original recommendation. The p/e is now at 44.86, which is high but not outlandish for a tech stock (Nvidia is trading at 55 times earnings).
Here's the latest update on Celestica.
Celestica (TSX, NYSE: CLS)
Originally recommended on Nov. 20/23 at C$38.46, US$28.05. Closed Friday at C$219.79, US$160.12.
Background: Toronto-based Celestica was originally part of IBM. In 1996, it was sold to Onyx Corp. It began trading publicly in 1998 with the sale of 20.6 million shares at US$17.50. The company employs 26,000 people.
Celestica has two operating segments: Advanced Technology Solutions (ATS) and Connectivity & Cloud Solutions (CCS).
The ATS segment consists of its Aerospace and Defense, Industrial, HealthTech, and Capital Equipment businesses. The CCS segment consists of the company's Communications and Enterprise (servers and storage) end markets.
Performance: The share price took a dive in January and plunged again in April in the wake of the 'Liberation Day' tariff announcements. However, it recovered quickly and recently hit a new high of $224.36.
Recent developments: First quarter results continued to show strong growth in revenue and earnings. Revenue for the three months to March 31 was $2.65 billion, up 20 per cent from the same period in 2024. Adjusted earnings per share came in at $1.20 compared to $0.83 the year before. Note that the company reports in U.S. dollars.
CEO Rob Mionis said both figures surpassed the upper end of the company's guidance range. 'This strong performance was further highlighted by our highest ever adjusted operating margin of 7.1 per cent,' he added.
The first quarter results and a strengthening demand have resulted in new guidance for the full 2025 fiscal year. Celestica now expects revenue to reach $10.85 billion, an increase from the prior forecast of $10.7 billion. Adjusted earnings per share are expected to be $5.00, up from the previous guidance of $4.75.
Second quarter results will be released on July 29.
Dividend and buybacks: The stock does not pay a dividend, but the company spent $75 million in the quarter to buy back 600,000 shares.
Outlook: The strong first quarter results and the improved revenue and profit guidance are encouraging.
Conclusion: I've advised our readers to take half profits on the stock. New investors may want to watch for dips, preferably below $210, to take an initial position.
Gordon Pape is editor and publisher of the Internet Wealth Builder and Income Investor newsletters.