Stock Analysis

Is Now The Time To Look At Buying CGI Inc. (TSE:GIB.A)?

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TSX:GIB.A
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CGI Inc. (TSE:GIB.A) saw its share price hover around a small range of CA$107 to CA$116 over the last few weeks. But is this actually reflective of the share value of the large-cap? Or is it currently undervalued, providing us with the opportunity to buy? Let’s take a look at CGI’s outlook and value based on the most recent financial data to see if there are any catalysts for a price change.

Check out our latest analysis for CGI

What is CGI worth?

CGI is currently expensive based on my price multiple model, where I look at the company's price-to-earnings ratio in comparison to the industry average. I’ve used the price-to-earnings ratio in this instance because there’s not enough visibility to forecast its cash flows. The stock’s ratio of 19.33x is currently well-above the industry average of 13.77x, meaning that it is trading at a more expensive price relative to its peers.

What kind of growth will CGI generate?

earnings-and-revenue-growth
TSX:GIB.A Earnings and Revenue Growth December 21st 2021

Investors looking for growth in their portfolio may want to consider the prospects of a company before buying its shares. Although value investors would argue that it’s the intrinsic value relative to the price that matter the most, a more compelling investment thesis would be high growth potential at a cheap price. CGI's earnings growth are expected to be in the teens in the upcoming years, indicating a solid future ahead. This should lead to robust cash flows, feeding into a higher share value.

What this means for you:

Are you a shareholder? It seems like the market has well and truly priced in GIB.A’s positive outlook, with shares trading above industry price multiples. At this current price, shareholders may be asking a different question – should I sell? If you believe GIB.A should trade below its current price, selling high and buying it back up again when its price falls towards the industry PE ratio can be profitable. But before you make this decision, take a look at whether its fundamentals have changed.

Are you a potential investor? If you’ve been keeping an eye on GIB.A for a while, now may not be the best time to enter into the stock. The price has surpassed its industry peers, which means it is likely that there is no more upside from mispricing. However, the positive outlook is encouraging for GIB.A, which means it’s worth diving deeper into other factors in order to take advantage of the next price drop.

If you'd like to know more about CGI as a business, it's important to be aware of any risks it's facing. In terms of investment risks, we've identified 1 warning sign with CGI, and understanding it should be part of your investment process.

If you are no longer interested in CGI, you can use our free platform to see our list of over 50 other stocks with a high growth potential.

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Find out whether CGI is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.

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