Reality Check for EMS Stocks

To propel growth, EMS firms have been expanding into other areas, like the medical, automotive and industrial sectors. These nontraditional markets have helped, but they are growing off a smaller base, Stice says.

Projects in the newer areas are generally smaller and take longer, says Seligman's Lu. For instance, the market for devices like heart monitors can't compare with the millions of laptops and cell phones sold each year, and regulatory approvals are much stricter in that area. Still, even with smaller volume, the projects are more complex and the margins are higher.

For his firm to dive into other U.S-based EMS companies, they would need to show consistent revenue growth between 20% to 30%, at a profitable pace and with better margins, Lu says. For example, Celestica sales were essentially flat this quarter compared with last year, and Solectron sales grew 3.8%.

Investors are likely to follow suit and stay on the sidelines.