Shares of Celestica (TSX:CLS) have been so incredibly hot this year, gaining over 176% this year. And while value investors may shy away from chasing such a name, I think the company’s position in the artificial intelligence revolution could help it continue its rise.
Of course, there will be more than a few bumps along the way, with shares down just over 3% on Tuesday in what has been a fairly turbulent trading session for the TSX Index, which is down nearly 2% on the day. Much of Tuesday’s decline was attributed to significant weakness in gold mining stocks.
The latest stumble in the TSX could be an opportunity to buy the stocks that “work”
Regardless, the latest TSX Index stumble, I think, should be seen as just another dip to pick up shares of overheated names that may not be ready to roll all the way. Of course, CLS stock is getting a bit difficult to value now that it’s trading at 57.6 times its price-to-earnings (P/E) ratio.
While the growth prospects justify a large premium, the big question investors need to ask themselves is how much of a premium to pay for the AI beneficiary as the so-called Fourth Industrial Revolution appears to be another year into its run.
On a forward-looking basis, shares are trading at just under 38 times forward price-to-earnings ratio, which is a much more reasonable figure, especially for one of Canada’s hottest new tech names.
If growth can remain in the high double digits, perhaps due to the continued strength of AI-driven demand, I would be in no rush to sell the name at the first sign of pain. The AI business still looks intact, despite the ‘bubble’ concerns raised by some. Perhaps the biggest vote of confidence in the past week, in my opinion, has been the start of reporting from one of the biggest banks on Wall Street.
Celestica is getting a major upgrade
Of Goldman Sachs By starting CLS stock with a buy rating and a price target that still implies a good amount of upside potential from current levels (especially after Tuesday’s latest dip), it could be a good time to think about adding to a position.
While I’m never a fan of chasing, I think nipping at further weakness, preferably closer to $350 per share, could be a smart move for long-term investors who believe in the growth story. In short, Goldman analysts said they view the Canadian company as a “winner among growing AI data center deployments” because of their “competitive advantage[s].” That is an encouraging statement, to say the least.
Either way, I think Goldman is right to remain bullish on Celestica, even though many of the easy wins have already been made by previous investors.
Ultimately, the company has a fairly wide economic moat that should protect its growth in the ongoing AI data center boom. As deals in the AI scene become more circular, I think Celestica is a name that will continue to benefit as more companies look to increase their spend on the latest and greatest AI technology and tools.
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