CGI (TSX:GIB.A) remains a key player in the global IT services sector, and its stock has seen significant growth over the years. With a current market price of $166.28, CGI stock has delivered a 52-week return that reflects strong investor confidence.
The company’s market capitalization now stands at $37.04 billion, a significant increase from previous quarters, indicating a steady expansion in investor interest. The company’s valuation metrics, such as a trailing price-to-earnings (P/E) ratio of 22.54 and a forward P/E of 19.80, suggest that the stock is trading at a fair valuation compared to industry peers. Given these figures, it’s important to determine whether CGI stock remains a solid buy, a hold for long-term gains, or if it has become overvalued and warrants a sell.
The numbers
CGI’s recent earnings report for the first quarter (Q1) of 2025 showcases continued financial strength, with revenue rising by 5.1% year over year to $3.79 billion. The company reported an increase in earnings before income taxes by 12.3% to $591.7 million. Meanwhile, net earnings also grew by 12.5% to $438.6 million. These figures resulted in a net margin of 11.6%, indicating that CGI stock maintained its efficiency in translating revenue into profit. With an operating margin of 16.69%, the company remains highly profitable relative to its industry peers. These strong profitability figures reinforce CGI’s ability to navigate economic uncertainties while continuing to generate sustainable earnings.
CGI stock’s financial health is further emphasized by its balance sheet strength. The company holds $1.46 billion in cash and cash equivalents, ensuring it has ample liquidity to fund future expansion efforts. However, its total debt currently stands at $3.32 billion, with a debt-to-equity ratio of 35.19%. While this leverage level is manageable given CGI’s cash flow generation, it does pose some risk in economic slowdowns. That said, the company’s strong operating cash flow of $2.2 billion and levered free cash flow of $1.99 billion demonstrate its ability to cover liabilities and reinvest in its business.
What to watch
A major driver for CGI’s continued success is its investment in artificial intelligence, digital transformation, and cloud computing. The IT services sector is evolving rapidly, and CGI stock has positioned itself as a leader in adapting to emerging technologies. The company’s mergers and acquisitions strategy has also played a crucial role in its growth. Allowing it to expand its service offerings and geographic reach. As organizations worldwide continue investing in IT infrastructure, CGI stock is likely to benefit from this ongoing demand, making it a strong long-term investment.
That said, potential risks cannot be ignored. The IT services industry is highly competitive, with other competitors vying for market share. Furthermore, rapid technological advancements mean that CGI stock must continuously innovate to maintain its competitive edge. Economic slowdowns and budget cuts by major clients could also impact revenue growth. Furthermore, while CGI stock has historically performed well during economic downturns, it remains vulnerable to fluctuations in corporate IT spending. This could affect future earnings.
Bottom line
Considering all these factors, CGI stock appears to be a solid long-term investment, making it a buy or hold depending on an investor’s risk tolerance and financial goals. For investors looking for steady growth and exposure to the expanding IT services industry, CGI stock remains an appealing choice. However, for those who have already seen significant gains in their holdings, it might be worth taking some profits at current levels. Given the company’s growth trajectory and analyst price targets, there is still room for upside, making it a compelling stock to keep in a diversified portfolio.
Ultimately, CGI stock is a well-managed company with strong financials and promising future growth prospects. While risks exist, they are outweighed by the company’s consistent execution, strategic acquisitions, and industry leadership. Whether an investor decides to buy, hold, or sell CGI stock should depend on their investment horizon and risk appetite. Long-term investors who believe in the continued expansion of digital transformation and IT services may find CGI stock to be a rewarding buy. Those seeking more immediate returns may consider holding or taking partial profits.
