-
Amphenol Corporation (APH $119.46)
-
Celestica Inc. (CLS $349.25)
-
Comfort Systems USA Inc. (FIX $776.38)
Like CLS, these stocks have risen quickly and might be overvalued. Like CLS, some analysts seem to think the ride can continue.
Would you be comfortable initiating a position, at which price and why, please?
Thank you
FIX has been benefiting from the AI trade for its cooling systems, as just under half of its revenue is stemming from tech projects, an increase from 30% in the prior year. APH is also benefiting from a surge in AI and data center infrastructure demand.
FIX trades at a forward P/E of 31X, but sales are growing by 20%+, and its margins have expanded considerably. It is conducting some buybacks with its free cash flows, but mostly adding to its balance sheet. Debt levels are reasonable, and analyst estimates continue to rise. APH is also showing nice sales growth of over 40%, rising margins, and good free cash flow generation with a buyback policy in place. It trades at 37X forward earnings.
These multiples are fairly elevated relative to the historical averages for FIX and APH, but the trend is also important - both have demonstrated a rising trend in valuations over the decade, which we feel helps to validate their secular tailwinds, potential for growth, and robust management teams. We would be comfortable initiating a position here for a long-term holding.