Celestica Inc. (TSE:CLS) shareholders should be happy to see the share price up 13% in the last month. But that cannot eclipse the less-than-impressive returns over the last three years. After all, the share price is down 32% in the last three years, significantly under-performing the market.
To paraphrase Benjamin Graham: Over the short term the market is a voting machine, but over the long term it's a weighing machine. One way to examine how market sentiment has changed over time is to look at the interaction between a company's share price and its earnings per share (EPS).
During the unfortunate three years of share price decline, Celestica actually saw its earnings per share (EPS) improve by 24% per year. Given the share price reaction, one might suspect that EPS is not a good guide to the business performance during the period (perhaps due to a one-off loss or gain). Or else the company was over-hyped in the past, and so its growth has disappointed.
Since the change in EPS doesn't seem to correlate with the change in share price, it's worth taking a look at other metrics.
Revenue is actually up 3.6% over the three years, so the share price drop doesn't seem to hinge on revenue, either. It's probably worth investigating Celestica further; while we may be missing something on this analysis, there might also be an opportunity.
You can see below how earnings and revenue have changed over time (discover the exact values by clicking on the image).
Celestica is a well known stock, with plenty of analyst coverage, suggesting some visibility into future growth. So it makes a lot of sense to check out what analysts think Celestica will earn in the future (free analyst consensus estimates)
A Different Perspective
Celestica shareholders are down 31% for the year, but the market itself is up 2.9%. Even the share prices of good stocks drop sometimes, but we want to see improvements in the fundamental metrics of a business, before getting too interested. Regrettably, last year's performance caps off a bad run, with the shareholders facing a total loss of 3.1% per year over five years. We realise that Buffett has said investors should 'buy when there is blood on the streets', but we caution that investors should first be sure they are buying a high quality businesses. If you would like to research Celestica in more detail then you might want to take a look at whether insiders have been buying or selling shares in the company.
Of course, you might find a fantastic investment by looking elsewhere. So take a peek at this free list of companies we expect will grow earnings.
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on CA exchanges.
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