Insiders Are Selling CGI Group: Should You?

Insiders may be selling their shares in this company, but that may not be wise. Here’s a look at whether CGI Group is still good to own.

| More on:
The Motley Fool

Successful investing requires analyzing financial reports, evaluating a company’s growth prospects, and assessing whether a company has the right management team. A shortcut, used by some traders, is to rely on insider activity to guide investing decisions. Insiders, which includes senior officers and directors, need to disclose their purchases and sales of company stock.

According to INK Research, CGI Group (TSX: GIB.A)(NYSE: GIB) had the third-highest dollar volume of insider selling on the Toronto Stock Exchange over the past 60 days — nearly $60 million of stock. With a presence in the Americas, Europe, and Asia-Pacific, CGI provides end-to-end IT consulting, outsourcing, and systems integration services to customers within specific sectors, including government, healthcare, financial services, and telecommunications.

For bottom-up, long-term investors, insider activity is just one piece of information to consider. Like every investor, insiders have their own reasons for buying and selling, and their actions may not be a clear signal on where the stock price is headed.

Apart from insider activity, let’s take a closer look at the case for, and against, an investment in CGI Group.

The case for CGI Group

CGI had a solid second quarter that saw profit more than double, driven by a 7% rise in revenue and strong European orders.

The company booked $2.9 billion in new business during the quarter, and reported a book-to-bill ratio of 105%. Book-to-bill is the ratio of orders added to the company’s backlog versus completed work that’s been billed to clients. A ratio over 100% means CGI is winning work faster than it’s completing existing orders, and increasing backlog. CGI’s acquisition of U.K.-based competitor Logica in 2012 for £1.7 billion appears to be paying off — the company recorded a book-to-bill ratio of 110% in Europe compared to just 98% in North America.

Despite the strong quarter, CGI has lost 6% of its value over the past six months compared to a 9% gain in the S&P/TSX Composite Index (TSX: ^OSPTX). It’s currently trading 9% below its 52-week high. Today, CGI offers investors an attractive valuation. Its trailing and forward price to earnings ratios trade at a slight discount to their five-year averages. Its forward PEG, which is the forward P/E ratio divided by the five-year forecasted growth rate, is just 0.6 — significantly lower than the five-year average of 1.1.

The case against CGI Group

Reduced U.S. government spending on IT-related services and the issues surrounding the troubled roll-out of President Obama’s healthcare website are two reasons why CGI’s book-to-bill ratio for North America slipped below 100% for the most recent quarter. CGI Group’s contract to manage the online U.S. health exchange program was subsequently not renewed.

The business of IT outsourcing, systems integration, and consulting is very competitive, and pricing pressure is sure to increase as competitors try to capitalize on CGI’s recent missteps in North America.

Then there is the issue of CGI’s dual-share structure. Thanks to the company’s Class B shares, the direction of the company is tightly controlled by the company’s co-founders. Good corporate governance usually requires that equity ownership and voting rights go hand in hand — not so at CGI.

Finally, because CGI reports in Canadian dollars, its results are positively impacted by a lower Canadian dollar relative to a range of currencies it does business in. The Canadian dollar has lost nearly 10% of its value compared to the U.S. greenback over the past 18 months. Any appreciation in the value of the loonie from current levels will hurt CGI’s financial performance.

So should you invest?

CGI is among the world’s five largest computer services companies. And with a market capitalization of $11.3 billion, CGI is nearly three times larger than Canada’s best known technology brand, BlackBerry (TSX: BB)(NASDAQ: BBRY).

CGI has grown to approximately 68,000 employees, and has proven adept at identifying and acquiring companies that can be successfully integrated into its business model. And it’s delivered for investors, gaining nearly 300% over the past five years.

CGI is a Canadian success story, even if it’s not as well-known as BlackBerry. I don’t think CGI is going anywhere but up over the next five to 10 years; it offers an excellent opportunity for long-term investors to achieve market-beating returns.

Should you invest $1,000 in Bank of Montreal right now?

Before you buy stock in Bank of Montreal, 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 Bank of Montreal 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 $21,345.77!*

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 24 percentage points since 2013*.

See the Top Stocks * Returns as of 4/21/25

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 Justin K Lacey has no positions in any of the stocks mentioned in this article.

More on Investing

Canadian Dollars bills
Tech Stocks

The Smartest Under $10 Stock to Buy With $2,300 Right Now

Blackberry stock remains undervalued as it's not reflecting the company's strong position in the rapidly growing connected car industry.

Read more »

Muscles Drawn On Black board
Dividend Stocks

Where Will Power Corporation Be in 5 Years?

Here's how Power Corporation of Canada (TSX:POW) stock could generate double-digit returns and outperform financial sector peers in five years...

Read more »

view of skyscapers from below
Dividend Stocks

Where I’d Invest $5,500 in the TSX Today

Seeking to invest $5,500 in the TSX? Here’s a look at two stellar picks that can provide decades of growth…

Read more »

shopper buys items in bulk
Dividend Stocks

The Smartest Consumer Defensive Stock to Buy With $2,700 Right Now

Here's why Loblaw (TSX:L) is among the best consumer defensive stocks investors can consider in this increasingly uncertain environment.

Read more »

Forklift in a warehouse
Dividend Stocks

How I’d Build a $250 Monthly Income Stream With $14,000

The trick to earning $250+/month is reinvesting dividends and adding to your portfolio over time.

Read more »

Piggy bank with word TFSA for tax-free savings accounts.
Stocks for Beginners

How I’d Secure My Financial Future With a $7,000 TFSA Investment

You can secure your financial future by holding these three TSX compounders in your TFSA long term. Here's what to…

Read more »

Dog smiles with a big gold necklace
Metals and Mining Stocks

The Smartest Materials Stock to Buy With $3,700 Right Now

A top-tier gold miner with a strong foundation for growth is the smartest materials stock to buy today.

Read more »

A red umbrella stands higher than a crowd of black umbrellas.
Dividend Stocks

The Top Canadian Stocks to Buy Immediately With $4,000

Insurance stocks are some of the strongest options, because we all need to pay it! And these three look top…

Read more »