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This Canadian Tech Stock Has Still Got it: Here’s Why Investors Should Want it

CGI Group (TSX:GIB.A)(NYSE:GIB) is a top Canadian tech stock that is the world’s fifth-largest independent IT services and outsourcing provider.

CGI stock has provided shareholders with a 40% three-year return and a business that is stable and steady, making for a relatively stress-free way to gain exposure to tech stocks.

But why does the title of my article say that CGI has still got it?

Well, it’s because the company recently reported its first-quarter fiscal 2019 results, which were slightly above expectations and signal good times ahead.

Let’s review what we should like about it and why we can be bullish on CGI stock’s future.

Organic revenue growth

Organic revenue growth of almost 3% in the quarter was driven by a strong improvement in the U.S. business.

On the conference call, management expressed optimism with regard to future organic growth, as all key indicators, such as backlog and the book-to bill ratio, point to accelerated growth continuing into the future.

Backlog was $23.3 billion, up $2.2 billion, and the book-to-bill ratio was 1.02 times for the quarter, and 116% in the trailing 12 months.

Strong and improving margins

The company reported a 13.3% increase in diluted EPS, with EBIT margins that increased 40 basis points to 14.8%.

This is a far cry from margins of below 9% years ago after the transformative Logica acquisition. This is important, as it speaks to the synergies that can be achieved with acquisitions, and it speaks to the company’s know-how and expertise in doing so.

Going forward, expect continued margin improvements, as the company strives to continue to increase its revenue from the higher-margin intellectual property and outsourcing businesses.

Strong cash flows

CGI stock has provided its shareholders with a more than 800% return over the last 10 years, and the company has grown its free cash flow from $458 million in 2013 to more than $1.1 billion in 2018.

And the growth is not over yet.

At this point in time, CGI still has a big opportunity to continue along its growth trajectory, with a focus on higher-margin business further increasing the company’s margins over time and the possibility of future acquisitions.

With a stellar balance sheet and a large cash balance, the company is just biding its time as it waits for the right acquisition at the right price.

Final thoughts

While there is no dividend to speak of, and the stock has had times of volatility in the past, the fact is that what we have here is a global company with a global network, and it’s diversified its revenue among different geographies and business segments.

This is one tech stock to add on weakness today for strong capital gains tomorrow.

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

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