Growth Investors: This Stock Has Risen 150% in 5 Years and Could Grow More!

CGI Group Inc. (TSX:GIB.A)(NYSE:GIB) is a well-diversified company with strong growth that would be a great addition to your portfolio.

| More on:

Service-based businesses are appealing since sales are more likely to be recurring and often see more consistency than product sales, which always need to find new ways to grow. With a good foundation of customers, a company that provides services can often rely on those existing clients to provide it with a consistent stream of revenue. I’m going to focus on a service-based company that has a diverse set of customers and services that could see lots of growth in the years ahead.

CGI Group Inc. (TSX:GIB.A)(NYSE:GIB) specializes in information technology (IT) and offers its customers a range of services, including application development, consulting, systems integration, and infrastructure management. In 2016, 54% of the company’s revenue came from the management of IT and business functions, with 46% coming from systems integration and consulting.

Diversified customers provide stability in CGI’s top line

CGI is well diversified geographically with less than a third of sales coming from the U.S. and less than half (43%) from North America. The company’s customers are also spread across many industries with government making up a third of revenues and manufacturing, retail & distribution taking up another 23% of sales this past fiscal year. By not being too exposed to one part of the world or one type of industry, CGI’s revenues are less at risk to struggling economies or industries.

Four straight years of strong profit growth

Although the company has not seen a big improvement in its top line with sales increasing just 6% in the past three years, the bottom line has more than doubled during this time. CGI was able to reduce its costs and incur fewer acquisition-related expenses, which allowed the company to bank over 8% of its revenue as profit.

A look at recent performance

In the company’s last quarter, its revenues were up 6% year over year, and profits were slightly up 1%. Overall, CGI has seen fairly consistent performances over the past five quarters, as it continues to show great stability.

Current valuation suggests CGI is a bargain

At a price-to-earnings ratio of over 18, CGI is priced favourably to similar stocks, like Constellation Software Inc. (TSX:CSU), which trades at a multiple of 56, and WSP Global Inc (TSX:WSP), which is priced at 23 times its earnings. Given CGI’s strong earnings growth, its PEG ratio is just 0.29, suggesting that the stock is a good value, given the rate of increase in its earnings per share over the past four years.

Is the stock a buy today?

Year to date, the stock has yielded returns of just 2%, but in the past five years, the share price has risen more than 150%. There is plenty of reason to expect the company will continue its growth with over $1 billion in free cash the past few years coupled with a debt-to-equity ratio of just 0.26, which gives CGI plenty of flexibility to take on new investments or acquisitions.

At a very attractive valuation, the stock is definitely a good buy, and it has lots of room for the share price to grow. Although the company doesn’t currently offer a dividend, that may change over time, especially as it continues to grow its free cash flow.

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 David Jagielski has no position in any stocks mentioned. CGI Group is a recommendation of Stock Advisor Canada. 

More on Tech Stocks

A person uses and AI chat bot
Tech Stocks

AI Where No One’s Looking: Seize Growth in These Canadian Stocks Before the Market Catches Up

Beyond flashy headlines about generative AI, these two Canadian AI stocks could deliver strong returns for investors who are willing…

Read more »

Data center servers IT workers
Tech Stocks

Better Buy: Shopify Stock or Constellation Software?

Let's dive into whether Shopify (TSX:SHOP) or Constellation Software (TSX:CSU) are the better options for growth investors in this current…

Read more »

nvidia headquarters with nvidia sign in front
Tech Stocks

Nvidia Just Delivered a Beat-and-Raise Quarter. There’s 1 Red Flag Investors Shouldn’t Ignore.

The chipmaker continued to benefit from robust demand for artificial intelligence (AI). But can it last?

Read more »

GettyImages-1473086836
Tech Stocks

Why Super Micro Computer Stock Is Soaring Today

The volatile stock is getting a boost from Nvidia.

Read more »

Snowflake logo in snowflake office on wall_snowflake-1
Tech Stocks

Here’s Why Snowflake Stock Skyrocketed Today

Shares of the data company are up 32% for the day.

Read more »

man touching magnifying glass button on floating search bar internet google search engine
Tech Stocks

Why Alphabet Stock Was Sliding Today

The parent company of Google is facing heat from U.S. regulators.

Read more »

chart reflected in eyeglass lenses
Tech Stocks

Top Canadian AI Stocks to Watch in 2025

Celestica (TSX:CLS) stock and another Canadian AI stock are worth watching closely this holiday season.

Read more »

Nvidia Voyager Headquarters
Tech Stocks

Why Nvidia Stock Rallied (Again) on Tuesday

The chipmaker is expected to report earnings this evening.

Read more »