CGI Valuation After Share Price Pullback and New Digital Transformation Contracts

• If you have been wondering whether CGI is quietly turning into a value opportunity after a rough stretch, you are not alone. That is exactly what we are going to unpack.
• The stock is up 2.6% over the last week and 1.2% over the last month, but it still sits around 18.9% lower year to date and 19.7% below where it was a year ago, despite posting 3 year and 5 year gains of 10.6% and 33.1%.
• Recent headlines have focused on CGI expanding its digital transformation and IT services footprint through new contracts and partnerships, reinforcing its role as a long term tech infrastructure partner for governments and enterprises. Investors are weighing whether this contract momentum is enough to justify a re rating after the share price pullback.
• On our valuation checks CGI scores a 5 out of 6 on being undervalued. You can see the breakdown in this valuation score, which sets the stage for comparing different valuation methods and then circling back at the end to another way to think about what the stock may be worth.

CGI delivered -19.7% returns over the last year. See how this stacks up to the rest of the IT industry.

Approach 1: CGI Discounted Cash Flow (DCF) Analysis

A Discounted Cash Flow model estimates what a company is worth by projecting its future cash flows and then discounting those projections back to today in CA$ terms.

For CGI, the latest twelve month Free Cash Flow is about CA$1.83 billion. Analysts provide detailed forecasts for the next few years, and beyond that Simply Wall St extrapolates the trend to build a longer runway for the model. Under this two stage Free Cash Flow to Equity approach, CGI is projected to be generating roughly CA$2.21 billion in Free Cash Flow in 10 years time, reflecting steady but not explosive growth as the business matures.

When all those projected cash flows are discounted back to today, the model arrives at an intrinsic value of about CA$148.05 per share. Compared with the current share price, this implies the stock is trading at roughly a 13.7% discount, indicating that investors may not be fully pricing in CGI’s future cash generation.

Result: UNDERVALUED

Our Discounted Cash Flow (DCF) analysis suggests CGI is undervalued by 13.7%. Track this in your watchlist or portfolio, or discover 906 more undervalued stocks based on cash flows.

Head to the Valuation section of our Company Report for more details on how we arrive at this Fair Value for CGI.

Approach 2: CGI Price vs Earnings

For a consistently profitable business like CGI, the Price to Earnings (PE) ratio is a useful way to gauge how much investors are willing to pay for each dollar of current earnings. In general, companies with stronger growth prospects and lower perceived risk can justify a higher PE, while slower-growing or riskier firms tend to trade on lower multiples.

CGI currently trades on a PE of about 16.7x, which sits below the broader IT industry average of roughly 21.4x and well under the approximate 44.6x multiple seen across its peer group. Simply Wall St also calculates a proprietary Fair Ratio of around 29.4x for CGI, which is the PE level that would be expected given its earnings growth outlook, profitability, industry, market cap and specific risk profile.

This Fair Ratio goes a step beyond simple peer or industry comparisons because it adjusts for the company’s own fundamentals rather than assuming that all IT stocks deserve the same multiple. With CGI trading at 16.7x versus a Fair Ratio of 29.4x, the shares appear meaningfully undervalued on an earnings-based view.

Result: UNDERVALUED

PE ratios tell one story, but what if the real opportunity lies elsewhere? Discover 1442 companies where insiders are betting big on explosive growth.

Upgrade Your Decision Making: Choose your CGI Narrative

Earlier we mentioned that there is an even better way to understand valuation, so let us introduce you to Narratives, a simple tool on Simply Wall St’s Community page that lets you attach your own story about CGI’s future to concrete numbers like revenue growth, margins, earnings and fair value. You can then compare that Fair Value with today’s Price to decide whether to buy, hold or sell. The Narrative automatically refreshes as new news or earnings land. For example, one investor might build a bullish CGI Narrative around accelerating AI adoption, rising margins and a fair value closer to CA$185. Another might focus on macro and integration risks, slower growth and a fair value nearer CA$137. By seeing these different, dynamically updated perspectives side by side, you can quickly judge which story and valuation best matches your own view and risk tolerance.

Do you think there's more to the story for CGI? Head over to our Community to see what others are saying!

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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