Celestica (CLS) has seen its stock tumble into bear market territory this month, with shares sliding to around C$407, a drop of nearly 40% from the June peak of C$656. The sell-off follows the company's latest earnings report and a significant capital raise, leaving investors to weigh the impact of dilution against robust AI-driven growth.
Technical picture points to further weakness
The daily chart shows a clear downtrend, with the stock breaking below the key support level of $450. The Relative Strength Index (RSI) has fallen from 76 to 40, its lowest since late July, but remains above oversold territory, suggesting that selling pressure may not be exhausted. Additionally, CLS has slipped below its 50-day exponential moving average, a signal that bears are in control in the near term.
If the decline continues, the next major support level to watch is $300. A move above the resistance zone at $470 would invalidate the bearish setup and could signal a reversal.
Fundamentals remain strong, but dilution looms
Celestica's latest quarterly results were impressive, with revenue surging 62% year-over-year to $4.70 billion, well above the company's guidance range of $4.15 billion to $4.45 billion. Adjusted operating margin also expanded to 8.2%, reflecting operational leverage. The Connectivity and Cloud Solutions (CCS) segment, which includes data center hardware and network infrastructure, drove most of the growth, contributing $3.8 billion in revenue, while the ATS business added $888 million.
Management raised its full-year revenue forecast to $20.5 billion from $19 billion, and analysts project revenue of $20.57 billion this year and $35 billion next year. Earnings per share are expected to climb from $6.05 to $11.22 in 2025, with further growth to $19.48 anticipated in 2026.
Demand from major cloud customers remains robust. Alphabet, Microsoft, and Amazon have collectively pledged over $750 billion in capital expenditures this year, which bodes well for Celestica's order book. However, the company recently completed a $3 billion common stock offering to fund investments, which has diluted existing shareholders.
Valuation concerns persist
Despite the strong growth, Celestica's valuation is stretched relative to peers. The stock trades at a forward price-to-earnings ratio of 26, above the sector median of 22 and its five-year average of 18.3. While the company's rapid revenue and earnings expansion may justify a premium, the elevated multiple leaves little room for error.
Investors are also watching broader tech sentiment, as seen in recent moves in other AI-related names. For example, XPeng shares plunged 10% on a weak outlook, and Unitree shares fell 45% as IPO hype faded. These episodes highlight the volatility in high-growth tech.
Celestica's fundamentals remain solid, but the combination of dilution, high valuation, and technical weakness suggests that the stock could face further downside in the near term. Traders will be watching the $300 support level closely, while a break above $470 would signal a potential trend reversal.
This article is for informational purposes only and does not constitute financial advice.
