Today we're going to take a look at the well-established CGI Inc. (TSE:GIB.A). The company's stock saw significant share price movement during recent months on the TSX, rising to highs of CA$96.10 and falling to the lows of CA$84.25. Some share price movements can give investors a better opportunity to enter into the stock, and potentially buy at a lower price. A question to answer is whether CGI's current trading price of CA$89.38 reflective of the actual value of the large-cap? Or is it currently undervalued, providing us with the opportunity to buy? Let’s take a look at CGI’s outlook and value based on the most recent financial data to see if there are any catalysts for a price change.
What is CGI worth?
According to my valuation model, CGI seems to be fairly priced at around 16% below my intrinsic value, which means if you buy CGI today, you’d be paying a reasonable price for it. And if you believe that the stock is really worth CA$106.44, then there’s not much of an upside to gain from mispricing. What's more, CGI’s share price may be more stable over time (relative to the market), as indicated by its low beta.
Can we expect growth from CGI?
Investors looking for growth in their portfolio may want to consider the prospects of a company before buying its shares. Although value investors would argue that it’s the intrinsic value relative to the price that matter the most, a more compelling investment thesis would be high growth potential at a cheap price. CGI’s earnings growth are expected to be in the teens in the upcoming years, indicating a solid future ahead. This should lead to robust cash flows, feeding into a higher share value.
What this means for you:
Are you a shareholder? It seems like the market has already priced in GIB.A’s positive outlook, with shares trading around its fair value. However, there are also other important factors which we haven’t considered today, such as the track record of its management team. Have these factors changed since the last time you looked at the stock? Will you have enough confidence to invest in the company should the price drop below its fair value?
Are you a potential investor? If you’ve been keeping an eye on GIB.A, now may not be the most advantageous time to buy, given it is trading around its fair value. However, the optimistic prospect is encouraging for the company, which means it’s worth further examining other factors such as the strength of its balance sheet, in order to take advantage of the next price drop.
If you'd like to know more about CGI as a business, it's important to be aware of any risks it's facing. For example, we've discovered 2 warning signs that you should run your eye over to get a better picture of CGI.
If you are no longer interested in CGI, you can use our free platform to see our list of over 50 other stocks with a high growth potential.
This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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