Is Celestica (CLS) Overvalued Despite Strong Earnings and Growth Outlook?

Celestica Inc. (CLS) has emerged as a standout performer in the Electronics Manufacturing Services (EMS) sector, driven by robust earnings growth and a strategic pivot toward AI infrastructure. However, its valuation metrics-particularly a lofty price-to-earnings (P/E) ratio and price-to-book (P/B) ratio-have sparked debates about whether the stock is overvalued. This analysis examines Celestica's valuation through the lens of industry benchmarks, earnings momentum, and market performance to determine if its current price reflects sustainable growth or speculative excess.

Valuation Metrics: A Tale of Contradictions

Celestica's P/E ratio of 49.93 as of December 29, 2025, far exceeds its 10-year historical average of 16.14, signaling a significant premium to past earnings. Similarly, its P/B ratio of 17.15 aligns closely with the industry average of 17.17, suggesting it trades at a level consistent with peers. However, the PEG ratio-a metric that adjusts for growth expectations-tells a different story. At 0.51, Celestica's PEG ratio is below the EMS sector average of 0.78, implying the stock may be undervalued relative to its projected earnings growth.

This divergence highlights a key tension: while traditional metrics suggest overvaluation, growth-adjusted metrics hint at potential upside.

Earnings Growth and Revenue Projections: Fueling Optimism

Celestica's financial performance in 2025 has exceeded expectations, with adjusted earnings per share (EPS) reaching $5.50-up from a prior estimate of $5.00-and revenue projected to hit $11.55 billion. The company has further raised its 2026 outlook, forecasting revenue of $16.0 billion and adjusted EPS of $8.20. These figures underscore a compound annual growth rate (CAGR) of approximately 30% in revenue and 49% in EPS over 2025–2026, driven by demand for AI-related products like 800G and 400G switching solutions.

Such growth has positioned Celestica as a key beneficiary of the AI infrastructure boom, a trend expected to persist as data center demand surges.

Market Performance Divergence: Outperforming Peers and the Broader Market

Celestica's stock has outperformed both its peers and the broader EMS industry in 2025. Over the past year, CLS delivered a total return of 241.8%, dwarfing the industry's 54.4% gain. This outperformance is partly attributed to its high beta of 2.41, which amplifies both upside and downside volatility. While this volatility could deter risk-averse investors, it also reflects strong investor confidence in Celestica's growth narrative. Additionally, the company's 12-month total return of 224.92% underscores its ability to capitalize on market tailwinds, even as competitors like Jabil (JBL) and Flex (FLEX) report more modest revenue gains.

Valuation Divergence: Justified or Excessive?

The key question is whether Celestica's valuation is justified by its growth trajectory. A forward P/E ratio of 37.68, while above the industry average of 24.13, appears reasonable when contextualized against its projected EPS growth of 49% in 2026. The PEG ratio of 0.51 further supports this view, as it suggests the stock is trading at a discount to its growth potential relative to peers. However, risks remain. High operating expenses have constrained margins, and the company's beta of 2.41 exposes it to market downturns. If earnings growth slows or macroeconomic conditions deteriorate, the stock's premium valuation could become a liability.

Conclusion: A Nuanced Case for Growth Investors

Celestica's valuation metrics present a mixed picture. While its P/E and P/B ratios appear elevated, they are offset by exceptional earnings growth, a strong growth outlook, and a PEG ratio that suggests relative undervaluation. The stock's outperformance against peers and the broader market reflects investor confidence in its AI-driven strategy. For growth-oriented investors, Celestica's valuation may be justified if its 2026 projections materialize. However, conservative investors may find the high beta and operating expenses concerning. Ultimately, Celestica's valuation hinges on whether its growth story can sustain momentum in a volatile market.