Celestica (TSX:CLS), once a hidden gem in the artificial intelligence (AI) sector, has been caught in the whirlwind of recent market volatility. The $6.5 billion company is a key supply chain and manufacturing partner to technology firms and it has richly benefitted from rapid demand growth for AI-related hardware. As investors reassess their positions in AI-driven stocks, Celestica's near-term future is shrouded in uncertainty. But is the recent sell-off an overreaction, a sign of a broader trend, or a lucrative buying opportunity on Celestica stock? Let's dive into the details.

Celestica stock had a bad week that culminated in a 10.2% one-day decline on Friday, September 6, 2024. The drop somewhat mirrored another AI stock Broadcom's 10.3% slide during a choppy trading session as investors digested weaker-than-expected U.S. jobs data. Fears of a potentially weak American market stoked some investor fears of bad economic times, and there are a few reasons why sellers could be right.

Let's evaluate some reasons to sell and (potentially) take some profits off Celestica stock, some justifications for holding, and my preferred Buy recommendation on CLS stock.

2 reasons to sell Celestica stock right now

Celestica is caught up in a sell-off of highly appreciated AI stocks, which have been on a rollercoaster lately. The stock rebounded with a 6% gain in early trading on Monday, but may sustain further weakness if AI-themed stocks renew their slide during the week. If your holding period is only a few weeks to a few months long, it may be prudent to take some profits on CLS stock as it undergoes some near-term weakness despite sowing strong revenue and earnings growth.

Further, a recession may be very bad for the company. Celestica's business is highly cyclical and volatile as technology sector customers may cancel and reduce orders as their near-term customer demand forecasts go down. Investors skeptical about the near-term health of the U.S. economy may take some profits off the table now.

Why hold onto CLS stock through its current turbulence

Volatility spikes are a natural phenomenon, especially on technology stocks experiencing hypergrowth phases. However, short-term volatility eventually gives way to enthusiasm. Even if Celestica stock remains volatile, today's volatility may mean nothing to long-term-oriented investors who will hold the stock over the next five or more years.

If you follow a buy-and-hold long-term strategy, there is plenty of room for Celestica stock to rise towards your price target if it keeps delivering stellar revenue and earnings results, as it has been doing lately. Investors shouldn't let short-term volatility ruin their retirement investment plans, and if your risk tolerance levels haven't declined, you can hold onto the stock and avoid panicking during market sell-offs.

I'd rather buy more stock, increase my stake, and sit out the bad market weather.

2 reasons to buy Celestica stock right now

Investors can buy the dip on Celestica stock as it experiences rapid revenue and earnings growth, and for its cheap valuation today.

Celestica is currently experiencing an explosive revenue growth spurt on the back of strong demand for artificial intelligence-related data centre switchgear and networking products. The company's largest revenue segment, the connectivity and cloud solutions segment, saw a 51% year-over-year surge in quarterly sales by June this year. Overall, second-quarter revenue growth of 23% lifted the company's quarterly sales to multi-year highs, and management raised its revenue guidance for the year.

CLS Revenue (Quarterly) data by YCharts

Bay street analysts forecast a strong 25.2% annual earnings growth rate for Celestica over the next five years – a desirable attribute for a growth stock worth buying and holding in a portfolio.

Most noteworthy, Celestica stock looks too cheap to ignore right now. Its historical price-to-earnings (P/E) ratio is 13.5, which is well below the industry average of 30.7. Further, shares appear undervalued given a forward price-earnings-to-growth (PEG) ratio of 0.5. Generally, PEG ratios under 1 imply a stock is undervalued given its earnings growth potential.

Investor takeaway

Celestica's fundamentals haven't deteriorated and volatility spikes will calm down, yet the AI stock looks undervalued for long-term-oriented investors to buy and hold it for potential gains.