Why You Should Consider Investing in CGI Group Inc. for Capital Growth

CGI Group Inc. (TSX:GIB.A)(NYSE:GIB) is a pure capital growth investment, and there are many catalysts in the future that could send this stock higher.

| More on:
The Motley Fool

In 2013, CGI Group Inc. (TSX: GIB.A)(NYSE: GIB) was in the news for all the wrong reasons. The Obamacare fiasco put the company in the middle of a heated debate with our neighbors in the south. Add to that the negative press of hedge fund investor Jim Chanos announcing his short position, and we can begin to understand why the stock is only up 12% so far this year.

Aside from that negative press, the underlying business is getting stronger and here are a couple of reasons why I like the company.

Logica restructuring

Back in 2012, CGI made its biggest acquisition in the company’s history by buying Logica PLC—a rival information technology company—and the merger is being implemented ahead of schedule. Management even announced on the last conference call that it was estimating the annualized cost synergies of the merger to meet or even exceed the $375 million target set at the beginning of the year.

European business

As of the last quarter, book-to-bill — the ratio of contracts signed divided by the contracts completed — was 108%. Anything over 100% is good because it indicates that the company can sign orders faster than it can complete them. When you take into account that in its history the company had almost all of its revenue coming from North America, having a more balanced revenue stream can only help mitigate any future economic downturn.

Additional acquisitions

During the last conference call management stated they were looking for additional acquisition. They mentioned that with the Logica merger behind them, cash flows should return to a normal level, giving the company a lot more resources. The company also took advantage of the low level of interest rates to refinance a portion of its debt with a longer maturity, strengthening its balance sheet in the event of an acquisition that would require near term resources.

As I stated in my introduction, this is not an investment for the income investor. The company is not ready to pay a dividend, and the share buyback program is not the principal focal point of management. CGI Group is a complete play on capital growth and with the stock currently trading at a 2014 forward P/E of 14, it is not overly expensive.

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 François Denault has no position in any stocks mentioned.

More on Investing

oil and gas pipeline
Energy Stocks

Best Stock to Buy Right Now: TC Energy vs Enbridge?

These TSX energy infrastructure giants are on a roll.

Read more »

woman analyze data
Investing

These Are My Top 3 Undervalued Stocks for Canadian Investors to Buy Now

These three undervalued TSX stocks have solid growth prospects and could generate significant returns over time.

Read more »

hand stacks coins
Dividend Stocks

This 7.7 Percent Dividend Stock Pays Cash Every Single Month

This TSX income stock has been paying above-average yields for decades now.

Read more »

tsx today
Stock Market

TSX Today: What to Watch for in Stocks on Monday, November 25

With solid 5.3% gains in November so far, the TSX Composite Index is currently at record highs.

Read more »

investment research
Dividend Stocks

Best Stock to Buy Right Now: TD Bank vs Manulife Financial?

TD and Manulife can both be interesting stock picks for today, depending on your investment style.

Read more »

A worker gives a business presentation.
Dividend Stocks

2 Dividend Stocks to Double Up on Right Now

These stocks are out of favour but could deliver nice returns over the coming years.

Read more »

Man holds Canadian dollars in differing amounts
Dividend Stocks

This 5.5 Percent Dividend Stock Pays Cash Every Month

This defensive retail REIT could be your ticket to high monthly income.

Read more »

Confused person shrugging
Dividend Stocks

Passive Income: How Much Do You Need to Invest to Make $600 Per Month?

Do you want passive income coming in every single month? Here's how to make it and a top dividend ETF…

Read more »