Stock Analysis

Is It Time To Consider Buying CGI Inc. (TSE:GIB.A)?

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TSX:GIB.A
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Today we're going to take a look at the well-established CGI Inc. (TSE:GIB.A). The company's stock saw a significant share price rise of over 20% in the past couple of months on the TSX. With many analysts covering the large-cap stock, we may expect any price-sensitive announcements have already been factored into the stock’s share price. However, could the stock still be trading at a relatively cheap price? Let’s examine CGI’s valuation and outlook in more detail to determine if there’s still a bargain opportunity.

Check out our latest analysis for CGI

What is CGI worth?

According to my valuation model, CGI seems to be fairly priced at around 19.68% above my intrinsic value, which means if you buy CGI today, you’d be paying a relatively reasonable price for it. And if you believe the company’s true value is CA$85.44, then there isn’t really any room for the share price grow beyond what it’s currently trading. Although, there may be an opportunity to buy in the future. This is because CGI’s beta (a measure of share price volatility) is high, meaning its price movements will be exaggerated relative to the rest of the market. If the market is bearish, the company’s shares will likely fall by more than the rest of the market, providing a prime buying opportunity.

Can we expect growth from CGI?

earnings-and-revenue-growth
TSX:GIB.A Earnings and Revenue Growth February 8th 2021

Investors looking for growth in their portfolio may want to consider the prospects of a company before buying its shares. Buying a great company with a robust outlook at a cheap price is always a good investment, so let’s also take a look at the company's future expectations. CGI's earnings over the next few years are expected to increase by 23%, indicating a highly optimistic future ahead. This should lead to more robust cash flows, feeding into a higher share value.

What this means for you:

Are you a shareholder? It seems like the market has already priced in GIB.A’s positive outlook, with shares trading around its fair value. However, there are also other important factors which we haven’t considered today, such as the track record of its management team. Have these factors changed since the last time you looked at the stock? Will you have enough confidence to invest in the company should the price drop below its fair value?

Are you a potential investor? If you’ve been keeping tabs on GIB.A, now may not be the most advantageous time to buy, given it is trading around its fair value. However, the optimistic prospect is encouraging for the company, which means it’s worth further examining other factors such as the strength of its balance sheet, in order to take advantage of the next price drop.

If you want to dive deeper into CGI, you'd also look into what risks it is currently facing. Every company has risks, and we've spotted 1 warning sign for CGI you should know about.

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