Celestica: Solid Headlines, but Clouded Outlook

The recently published earnings report from Celestica left many investors disappointed, even though the headline numbers were impressive. A deeper analysis, however, reveals some concerning undertones. Particularly troubling is the share dilution. Celestica increased the number of outstanding shares by 5.2% in the past year, meaning that earnings are now distributed over a larger number of shares. This phenomenon can be well illustrated: It's like being pleased with a larger pizza slice, even though the pizza has been cut into more pieces. The dilution has unmistakable impacts on earnings per share (EPS). Celestica has managed to boost its net income by an impressive 319% annually over the past three years. In the last year alone, there was a 117% increase in earnings. However, in comparison, the EPS grew "only" by 122%, with the rising number of shares taking a toll. In the long term, changes in the stock price often mirror changes in EPS. Therefore, it would definitely be a positive signal for shareholders if Celestica could continuously increase EPS. However, it is less encouraging when earnings (excluding EPS) rise. Shareholders of Celestica should always keep an eye on how many new shares are issued, as dilution can significantly affect returns. Although Celestica's headline earnings may look good, the real earning power of the company could suffer. On a positive note, the EPS has grown remarkably over the past three years. So, the question remains how reliably the reported earnings reflect the potential of the company. There are still many other aspects to consider. For instance, there are indications of potential risks that investors should be aware of. Those who wish to delve deeper might look into companies that have high returns on equity or review list of stocks where insiders have substantial holdings.