Celestica Inc. CLS

Key data

The business

Celestica builds electronics for other companies. Two businesses sit under one roof. One, Connectivity and Cloud Solutions, makes the networking switches, servers and storage that go inside data centers, and this is where the money is now. The other, Advanced Technology Solutions, builds gear for aerospace, defense, industrial and medical customers, steadier and slower. The cloud side is riding the AI build-out: the hyperscalers are ordering 400 and 800-gigabit switches and custom compute boxes about as fast as Celestica can ship them. The one detail that matters is that some of what ships is Celestica's own hardware design, sold under its own program, which earns more than bolting together a customer's blueprint. The moat is thin and real at once: an assembler earns its keep by being wired years deep into a customer's product roadmap, which is hard to unplug but easy to squeeze on price.

The numbers

Revenue and profit have gone straight up for five quarters, and the pace is quickening.

The last quarter, ended June, was the biggest ever: $4.7B of revenue, up 62% on the year and 16% on the quarter, with net profit up 75%, outrunning sales because the company now earns interest on its cash, carries fewer shares, and gets more operating leverage as volume climbs. What has not clearly happened is gross-margin expansion. That is the whole tell on the bull case, so it earns the second table.

Two years in an 11-to-13% band, no trend, the signature of a business that assembles more than it invents. The early-2026 dip was a tax and one-time-item wobble on top of that thin base.

Step back and the compounding is real: revenue from $5.6B in 2021 to $12.6B in 2025, about 22% a year, while diluted earnings per share ran from $0.82 to $7.29, roughly 73% a year, faster than sales because the share count shrank 8% and scale did the rest. The first half of 2026 already booked $8.7B of revenue and $5.00 of earnings. One number cuts hard the other way, and it is the fact this bullish read explains least: 2025 net income was $847M but free cash flow was only $466M, and the trailing free-cash yield is 1.4% against a 3.1% earnings yield. Growth eats cash here, inventory and receivables swell as revenue ramps, so reported earnings run ahead of the cash actually collected. That gap is what you are paying 32 times for.

Management

Robert Mionis has run this through the whole climb, and the capital record is good: the company bought back $382M of stock in 2025 at an average near $181, well under today's $312, and has trimmed the share count every year with no dividend. The other half of the ledger is less comfortable. Insiders bought nothing over the last year and sold $75M across 84 open-market transactions, the CEO himself about $18M in the first week of August near the highs. The disclosures do not split the pre-scheduled sales from discretionary ones, so read the cluster as a signal, not proof. The concentration worry raised three weeks ago, that a handful of buyers hold the pricing power and rewrite the terms when they choose, has not been put to a fresh test since, no new quarter has printed, and the only new data point is that August selling, which points the wrong way.

How it fails or surprises you

Customer in-sourcing. The cloud segment is the whole growth story and a small number of hyperscalers are most of it. If one pulls a program in-house or moves it to a rival assembler, a quarter of revenue can drain out over two quarters. Watch the customer-concentration line and cloud-segment revenue each quarter; that is where the first crack shows.

Own-design mix lifts the margin (right tail). The margin table is flat because Celestica still mostly assembles. If its own-design programs take real share, gross margin drifts from 12% toward the mid-teens. On an $18B revenue run-rate, each point is roughly $180M of gross profit the price does not yet assume. The print that reveals it is the gross-margin sequence, quarter over quarter, with disclosed own-design revenue.

The cash gap. Free cash flow was $466M against $847M of net income last year, and the working-capital build is why. If growth stalls, that capital unwinds back into cash and the picture flatters; if growth keeps running, the earnings you are capitalizing keep overstating the cash. Either way the multiple assumes a cash conversion the company has not shown.

Closing thoughts

Two forces set the payoff, and only one has a print that settles it. The margin question resolves in the numbers over the next two or three quarters: gross margin either finally lifts as own-design takes share, or it stays pinned near 12% and the re-rating loses its footing. That one you can watch. The other, whether the AI data-center spending behind the cloud segment is near a peak, no filing resolves, only time does, and the stock has already fallen from $474 to $312 as the market started asking. The fatter tail is probably still the upside if the mix shift is coming, but the left tail is a real drop from here, because 32 times earnings on an assembler leaves no room for a customer to walk or capex to cool.

The bet is still that the cloud giants keep spending on AI data centers and keep paying Celestica to build the gear, with more of it Celestica's own design. What breaks it is concentration, one big customer leaving, or margins stalling near 12%. The two numbers that tell you first are cloud-segment revenue and gross margin, read side by side, next quarter. If those two turn together, the story the price now assumes is over.