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Does CGI (TSE:GIB.A) Deserve A Spot On Your Watchlist?

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Some have more dollars than sense, they say, so even companies that have no revenue, no profit, and a record of falling short, can easily find investors. Unfortunately, high risk investments often have little probability of ever paying off, and many investors pay a price to learn their lesson.

In the age of tech-stock blue-sky investing, my choice may seem old fashioned; I still prefer profitable companies like CGI (TSE:GIB.A). While profit is not necessarily a social good, it's easy to admire a business that can consistently produce it. Loss-making companies are always racing against time to reach financial sustainability, but time is often a friend of the profitable company, especially if it is growing.

View our latest analysis for CGI

How Quickly Is CGI Increasing Earnings Per Share?

As one of my mentors once told me, share price follows earnings per share (EPS). That makes EPS growth an attractive quality for any company. Over the last three years, CGI has grown EPS by 11% per year. That's a pretty good rate, if the company can sustain it.

I like to see top-line growth as an indication that growth is sustainable, and I look for a high earnings before interest and taxation (EBIT) margin to point to a competitive moat (though some companies with low margins also have moats). It seems CGI is pretty stable, since revenue and EBIT margins are pretty flat year on year. That's not a major concern but nor does it point to the long term growth we like to see.

You can take a look at the company's revenue and earnings growth trend, in the chart below. Click on the chart to see the exact numbers.

earnings-and-revenue-history
earnings-and-revenue-history

In investing, as in life, the future matters more than the past. So why not check out this free interactive visualization of CGI's forecast profits?

Are CGI Insiders Aligned With All Shareholders?

We would not expect to see insiders owning a large percentage of a CA$27b company like CGI. But we are reassured by the fact they have invested in the company. Notably, they have an enormous stake in the company, worth CA$3.1b. I would find that kind of skin in the game quite encouraging, if I owned shares, since it would ensure that the leaders of the company would also experience my success, or failure, with the stock.

Should You Add CGI To Your Watchlist?

One important encouraging feature of CGI is that it is growing profits. If that's not enough on its own, there is also the rather notable levels of insider ownership. That combination appeals to me, for one. So yes, I do think the stock is worth keeping an eye on. Still, you should learn about the 2 warning signs we've spotted with CGI .

You can invest in any company you want. But if you prefer to focus on stocks that have demonstrated insider buying, here is a list of companies with insider buying in the last three months.

Please note the insider transactions discussed in this article refer to reportable transactions in the relevant jurisdiction.

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. 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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