CGI Group Inc. Reports Strong Results, But Are the Shares Overvalued?

CGI Group Inc. (TSX:GIB.A)(NYSE:GIB) reported continued progress in sales growth and financial strength.

| More on:
The Motley Fool

You’re reading a free article with opinions that may differ from The Motley Fool’s premium investing services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

CGI Group Inc. (TSX:GIB.A)(NYSE:GIB) reported EPS of $0.91, which was slightly below expectations as margins were slightly lower than expected; the adjusted EBIT margin came in at 14.5%. This compares to last quarter’s margin of 14.8%.

Part of the reason for the margins being below expectations is a one-time delay in a specific project in the U.K., so this may not be anything to worry about. Longer term, software-related business is increasing as a percentage of total sales, and since this business is higher margin, we can expect margins to continue to rise.

Operating cash flow was $366 million compared to $349.7 million last quarter. This represents a 4.7% increase and 13.5% of revenue — very strong numbers. This continued strong cash flow generation has resulted in continued strengthening of the balance sheet, which has improved again this quarter. The total debt-to-capitalization ratio currently stands at 18.2%, down from 23.8% last year. Cash and cash equivalents on the balance sheet were $282 million as at March 31, 2017.

Going forward, management stated on the earnings conference call that they are seeing accelerating demand, and that business from the financial services and oil and gas sectors are growing at double digits. Bookings are strong — at $2.73 billion in the quarter. And although the book-to-bill ratio of one times for the quarter was not particularly strong, on a trailing-12-month basis, the book-to-bill ratio was better at 1.08. Recall that the book-to-bill ratio is indicative of demand, and that anything over one is good, as this is a signal of healthy demand.

So, the quarter was good. The company continued its “build and buy” strategy by growing almost 5% organically and by adding two U.S. companies to its list of acquisitions last week. These tuck-in acquisitions of two high-end consulting firms add to CGI’s geographic presence in the U.S., strengthen its presence in the U.S. commercial business, and add to the company’s high-end consulting capabilities worldwide. As per usual, management has stated that they will be earnings accretive within 12 months.

The stock trades at a P/E of 17.7 times this year’s earnings, which are expected to see an 8% growth rate. Considering the upward-trending margins, the strength of CGI’s balance sheet (and therefore its ability to continue to be a consolidator in the industry), and accelerating demand, I believe that the upside in the earnings number justifies the valuation on the stock.

It will be harder and harder for CGI to achieve high growth rates just because the company has become so big, but this is more than offset by the company’s stability and successful execution record.

Should you invest $1,000 in Atrium Mortgage Investment Corporation right now?

Before you buy stock in Atrium Mortgage Investment Corporation, consider this:

The Motley Fool Stock Advisor Canada analyst team just identified what they believe are the Top Stocks for 2025 and Beyond for investors to buy now… and Atrium Mortgage Investment Corporation wasn’t one of them. The Top Stocks that made the cut could potentially produce monster returns in the coming years.

Consider MercadoLibre, which we first recommended on January 8, 2014 ... if you invested $1,000 in the “eBay of Latin America” at the time of our recommendation, you’d have $20,697.16!*

Stock Advisor Canada provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month – one from Canada and one from the U.S. The Stock Advisor Canada service has outperformed the return of S&P/TSX Composite Index by 29 percentage points since 2013*.

See the Top Stocks * Returns as of 3/20/25

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Karen Thomas owns shares of CGI GROUP INC CL A SV. CGI Group is a recommendation of Stock Advisor Canada.

Confidently Navigate Market Volatility: Claim Your Free Report!

Feeling uneasy about the ups and downs of the stock market lately? You’re not alone. At The Motley Fool Canada, we get it — and we’re here to help. We’ve crafted an essential guide designed to help you through these uncertain times: "5-Step Checklist: How to Prepare Your Portfolio for Volatility."

Don't miss out on this opportunity for peace of mind. Just click below to learn how to receive your complimentary report today!

Get Our Free Report Today

More on Tech Stocks

Digital background depicting innovative technologies in (AI) artificial systems, neural interfaces and internet machine learning technologies
Tech Stocks

3 Canadian Artificial Intelligence Stocks to Buy and Hold Until 2040

These three Canadian tech stocks to help you benefit from the surging demand for AI tech and infrastructure in the…

Read more »

money goes up and down in balance
Tech Stocks

Billionaires Are Selling Apple Stock and Buying This TSX Stock in Bulk

Billionaires might be dumping Apple stock after it lost over US$600 billion last week. But this other tech stock looks…

Read more »

Data center woman holding laptop
Tech Stocks

Better Tech Stock: Lightspeed Vs. Kinaxis?

These two tech stocks were once on top of the world, but after coming down in price, it might be…

Read more »

Happy shoppers look at a cellphone.
Tech Stocks

1 Tech Stock I’d Buy With $1,000 Whenever it Dips (Further) in Price

Shopify (TSX:SHOP) is one of the names to check out should it fall below $100 per share.

Read more »

coins jump into piggy bank
Dividend Stocks

Where I’d Invest $12,000 in Canadian Stocks for Reliable Dividends

Want reliable dividends? Here's a trio of stocks that can provide a juicy income stacked for growth, even with a…

Read more »

Young Boy with Jet Pack Dreams of Flying
Dividend Stocks

Beginner Investors: 4 Top Canadians Stocks to Buy in 2025

If you're new to investing and looking for some Canadian stocks that are worry free, here's where to go.

Read more »

e-commerce shopping getting a package
Tech Stocks

Should You Buy Shopify Stock While It’s Below $120?

Shopify stock has had a strong growth story, but it probably isn't over yet.

Read more »

cloud computing
Tech Stocks

How I’d Allocate $1,000 in Tech Stocks in Today’s Market

Investing regularly in undervalued tech stocks such as RingCentral should help you derive outsized gains in 2025 and beyond.

Read more »