CGI Inc.’s (TSE:GIB.A) Earnings Grew 12%, Did It Beat Long-Term Trend?

When CGI Inc. (TSE:GIB.A) announced its most recent earnings (31 December 2018), I did two things: looked at its past earnings track record, then look at what is happening in the industry. Understanding how CGI performed requires a benchmark rather than trying to assess a standalone number at one point in time. Below is a quick commentary on how I see GIB.A has performed.

View our latest analysis for CGI

Were GIB.A’s earnings stronger than its past performances and the industry?

GIB.A’s trailing twelve-month earnings (from 31 December 2018) of CA$1.2b has jumped 12% compared to the previous year.

Furthermore, this one-year growth rate has exceeded its 5-year annual growth average of 8.0%, indicating the rate at which GIB.A is growing has accelerated. How has it been able to do this? Let’s see whether it is only because of industry tailwinds, or if CGI has seen some company-specific growth.

TSX:GIB.A Income Statement, March 3rd 2019
TSX:GIB.A Income Statement, March 3rd 2019

In terms of returns from investment, CGI has fallen short of achieving a 20% return on equity (ROE), recording 17% instead. However, its return on assets (ROA) of 9.5% exceeds the CA IT industry of 6.0%, indicating CGI has used its assets more efficiently. And finally, its return on capital (ROC), which also accounts for CGI’s debt level, has increased over the past 3 years from 17% to 18%. This correlates with a decrease in debt holding, with debt-to-equity ratio declining from 73% to 32% over the past 5 years.

What does this mean?

Though CGI’s past data is helpful, it is only one aspect of my investment thesis. Companies that have performed well in the past, such as CGI gives investors conviction. However, the next step would be to assess whether the future looks as optimistic. You should continue to research CGI to get a more holistic view of the stock by looking at:

  1. Future Outlook: What are well-informed industry analysts predicting for GIB.A’s future growth? Take a look at our free research report of analyst consensus for GIB.A’s outlook.
  2. Financial Health: Are GIB.A’s operations financially sustainable? Balance sheets can be hard to analyze, which is why we’ve done it for you. Check out our financial health checks here.
  3. Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore our free list of these great stocks here.

NB: Figures in this article are calculated using data from the trailing twelve months from 31 December 2018. This may not be consistent with full year annual report figures.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.