DIGI INTERNATIONAL INC. (DGII): what the price requires

At today's price, DIGI INTERNATIONAL INC. (DGII) is priced for today's economics sustained for ~11.5 years. boothcheck doesn't publish a fair value or a price target; it shows what the price assumes, so you can judge whether that bar is too high.

Generated: 2026-07-19 · Source: https://boothcheck.com/report/DGII

Headline

FieldValue
TickerDGII
CompanyDIGI INTERNATIONAL INC.
Current price$65.69/sh
CompositionIoT Products & Services 74% / IoT Solutions 26%

What The Price Requires (Inversion)

The assumption today's price embeds, recovered by inverting the valuation.

FieldValue
Inversion basiswhole-company
Operating margin needed20.9%
Operating margin today13.3%
Margin expansion implied+7.6pp
Must persist for11.5y
Multiple paid42x operating income

The operating-margin requirement is derived from the framework's value band at year 12, a separately labeled basis from the headline growth/duration solve.

Solve inputs: computed at a 10.7% cost of capital; growth searched up to the 25% self-funding ceiling; each 1pp moves the implied horizon ~2.1 years.

Reconcile: at the x-ray's 9.3% required return this reads ~8.5 years; the models below use their own rates.

How unusual the bet is: elevated

ReferenceValue
vs own history-0.27σ
cohort percentile (of 178 peers)73
sustained it ~10 years at this level15%
implied end-window share0%

Valuation X-Ray

Asset, earnings-power and peer-multiple models all land far below the price; ONLY the growth-DCF reaches it. The bet is durable compounding the static frames structurally cannot price (a moat/durability premium).

How the valuation models price the stock relative to the market price. Price/FV above 1.0 means the market pays more than that lens defends (expensive); at or below 1.0 the lens can defend the price.

FamilyMedian price/FVModelsReads
Asset5.98x4expensive
Earnings5.38x5expensive
Relative2.12x5expensive
Growth0.93x3justifies

Families that justify the price: Growth Families that call it expensive: Asset, Earnings, Relative

The models below discount at their own flat-beta convention rates (cost of equity 9.3%, WACC 8.8%); the inversion above states its own rate.

Per-Model Detail (n=17)

ModelFamilyFVPrice/FVApplicableMethodology
DCF Perpetual GrowthGrowth$76.590.86xyesFCF base $0.1B, growth 14% (input: historical growth), terminal g 4.0%, WACC 8.8%, 6yr projection
DCF Exit MultipleGrowth$70.630.93xyesExit EV/EBITDA: 38.3x / 40.3x / 42.3x (bear / base = today's held flat / bull), 6yr
Relative ValuationRelative$44.481.48xyesP/E 37.14x (blended: static sector reference 28x + trailing (TTM) 58x), scenarios: 30.5x / 37.1x / 43.7x (bear / base = reference held flat / bull), EV/EBITDA 26.08x
Simple DDMGrowth——no—
Two-Stage DDMGrowth——no—
Simple Excess ReturnAsset$12.155.41xyesBV/sh $17.31, ROE (TTM) 6.5%, ke 9.3%
Two-Stage Excess ReturnAsset$10.026.56xyes5yr excess ROE then converge to ke=9.3%
Discounted Future Market CapGrowth$51.771.27xyesRev $0.5B, growth 14% (input: historical growth; tapered), Terminal P/S: 4.4x / 5.3x / 6.3x (bear / base = today's held flat / bull, cap 12x)
Peter Lynch Fair ValueRelative$13.564.84xyesEPS $1.13, growth 1% (input: historical EPS growth), PEG=67.16 (Overvalued)
Margin TrajectoryGrowth——no—
Earnings Power ValueEarnings$6.0810.81xyesNormalized EBIT (5y avg op income, one-time charges added back) $0.05B × (1−24%) / WACC 8.8% → EPV (no growth)
Residual IncomeAsset$9.736.75xyesBV $17.31 + 5yr PV of (ROE (TTM) 6.5% − Kₑ 9.3%) × BV; BV grows 4.2%/yr
Graham NumberAsset$20.983.13xyes√(22.5 × EPS $1.13 × BVPS $17.31) — Graham's conservative floor
EV/EBITDA RelativeRelative$31.022.12xyesEBITDA $0.07B × sector EV/EBITDA 20.0x
FCF YieldEarnings$32.362.03xyesFCF $126.5M / Kₑ 9.3% — zero-growth perpetuity
SBC-Adj FCF YieldEarnings$27.762.37xyesSBC-adj FCF $0.11B (FCF $0.13B − SBC $0.02B) capitalized at Kₑ
Ben Graham FormulaEarnings$9.706.77xyesEPS $1.13 × (8.5 + 2×0.9%) × (4.4 / 5.3%)
ROIC-Justified P/BAsset$3.2620.15xyesBV $17.31 × (ROIC 1.7% / WACC 8.8%) (excluded from median)
P/Sales SectorRelative$74.070.89xyesRevenue $0.48B × sector P/S 6.0x
PEG Fair ValueRelative$5.6511.63xyesEPS $1.13 × (PEG 1.5 × growth 0.9% (input: historical EPS growth)) → PE 1.3x
Earnings YieldEarnings$12.225.38xyesEPS $1.13 / required return 9.3% (Rf 4.3% + ERP 5.0%)
Funds From Operations MultipleRelative——no—
Clinical Phase NPVGrowth——no—
MertonAsset——no—
V5 Mechanical———no—

Solvency

FieldValue
Net debt$111.3m
Net debt / NOPAT (after-tax)2.35x
Net debt / operating income (pre-tax)1.79x
Interest coverage9.1x
Share count CAGR (dilution)2.0%
Burning cashno

Bullet Takeaways

Bull Case

Start with the balance sheet, because it tells you whether management can afford the transformation it is attempting. Digi carries only about $111 million of net debt, under two times operating income, with interest covered nearly nine times over. That is a modest, easily serviceable load for a business generating real operating cash flow, and it is what has let Digi fund acquisitions, most recently Particle in January and Jolt, that bolt recurring revenue onto its installed base without straining the company. A clean balance sheet is the precondition for the bet Digi is making, and it has one.

The transformation itself is the bull case, and it is working faster than the headline revenue suggests. Annualized recurring revenue hit a record $184 million in the most recent quarter, up 50% year over year, on total revenue of $130.7 million, up 25%. The two segments are pulling together: IoT Products and Services grew 20% to $94 million with its recurring revenue doubling to $57 million, and IoT Solutions grew 39% to $37 million on the Jolt acquisition and organic expansion. The significance is the mix. Recurring revenue carries higher margins and far more predictability than one-time hardware sales, so a company shifting its revenue base toward subscriptions is also shifting its earnings quality, which is precisely what the elevated valuation is paying for.

That is why the valuation methods line up the way they do. Every backward-looking lens, asset value, current earnings power, peer multiples, reads Digi as richly valued, and only the growth-based method reaches the price. The market is paying a durability premium, betting that the recurring-revenue engine compounds and lifts margins toward the low-20s the price implies. Management's raised guidance, 25% ARR growth and 23% to 26% adjusted EBITDA growth for fiscal 2026, is the kind of acceleration that justifies a premium if it persists. The bull case is that Digi is in the early innings of a genuine business-model shift, with the balance sheet to fund it and the recurring-revenue growth to prove it.

Bear Case

The structural truth a Digi holder has to face is plain: the multiple is pricing a margin profile the company does not yet have. At roughly 44 times operating income, the price assumes Digi lifts its operating margin from about 13% today to around 22% and sustains that elevated level for more than a decade. That is not a small adjustment; it is nearly a doubling of operating margin, and it has to happen and then hold. The recurring-revenue growth is real and encouraging, but a 50% ARR increase off a base that is still a minority of total revenue is the beginning of a transformation, not the proof of its endpoint. The price has already credited the endpoint.

The reliance on acquisitions to drive the ARR growth is the second concern. Much of the recurring-revenue surge traces to Particle and Jolt, bought-in growth rather than purely organic. Acquired growth flatters the year-over-year numbers and can mask softer underlying momentum, and integration carries its own risks: customer churn, retention of the acquired engineering talent, and the goodwill and intangibles that pile up on the balance sheet and can be written down if the deals underperform. A company that has to keep buying recurring revenue to hit its growth targets is running a different, riskier playbook than one growing it organically, and the share count drifting up about 2% a year suggests the funding is not entirely free.

Competition is the slow-burn risk under the durability premium. IoT connectivity is a crowded field where Digi competes against far larger networking and infrastructure companies with deeper resources and broader platforms. Holding a 22% operating margin for over a decade assumes a moat that resists pricing pressure from bigger rivals and the commoditization that tends to overtake connectivity hardware. The balance sheet is sound and the business is profitable, so this is not a distress story. It is a valuation story: only the most optimistic forward method supports the price, and that method assumes the margin expansion lands on schedule. If the transformation stalls at, say, mid-teens margins, or if acquisition-driven ARR growth slows once the deals lap, the durability premium unwinds toward the conservative methods, which sit at a fraction of the price.

Valuation

The price asks a clear question: can Digi roughly double its operating margin and hold it? At about 44 times operating income, the inversion implies the company lifts its operating margin from around 13% today toward 22% and grows at its self-funding ceiling for about 12 years. The near-term growth pace is within what Digi has recently delivered, helped by acquisitions; the demanding part is the margin step-up and its duration, since only about 15% of comparable fast-growers sustained that kind of pace even ten years. The margin assumption, not the growth rate, is the load-bearing piece of this valuation.

The methods we use to triangulate are lopsided in a way that names the bet. The asset lens, the current earnings-power lens, and the peer-multiple lens all land at a fraction of the price, treating Digi as richly valued on what it earns and owns today. Only the growth-based discounted cash-flow method reaches the price, and it does so by crediting the recurring-revenue compounding and the margin expansion it implies. Read honestly, that pattern is a durability premium: the static frames cannot price a business mid-transformation, so the market is paying forward for the recurring-revenue model to mature. The spread between those conservative methods and the price is the entire premium, and it rests on the ARR growth converting into the higher, durable margins the price assumes.

Solvency is supportive and removes the financial-risk question. Net debt of about $111 million is under two times operating income, interest coverage runs near nine times, and the company generates the cash flow to fund its acquisitions, so there is no balance-sheet fragility. The share count has crept up about 2% a year, modest dilution tied to compensation and deal funding rather than a red flag. The downside is bounded by a sound balance sheet and a profitable, growing business, not by zero. But the valuation offers little cushion: the price is built almost entirely on the forward-growth method, so a buyer here is underwriting the margin doubling and its persistence, with the conservative methods marking how far the price sits above what Digi has actually demonstrated.

Catalysts

Digi's second fiscal quarter of 2026 set records across the board and prompted a guidance raise. Revenue reached a record $130.7 million, up 25% year over year and ahead of the roughly $127.5 million consensus, while annualized recurring revenue hit a record $184 million, up 50% year over year. The ARR growth is the metric the market cares most about, because it measures the shift toward the subscription model that the valuation is paying for.

The two segments contributed differently. IoT Products and Services grew 20% to $94 million with its recurring revenue doubling to $57 million, helped substantially by the January acquisition of Particle, which deepens Digi's edge-to-cloud portfolio. IoT Solutions grew 39% to $37 million, driven by the Jolt acquisition and organic expansion. The acquisitions are central to the story, both as growth drivers and as the source of much of the ARR acceleration, so their integration and retention are the things to monitor.

On the back of the quarter, management raised fiscal 2026 guidance to 25% ARR growth, 20% to 22% revenue growth, and 23% to 26% adjusted EBITDA growth versus fiscal 2025, and guided third-quarter revenue to $130 million to $134 million. The catalysts to watch are whether ARR growth stays near the guided pace as the acquisitions lap, whether organic recurring revenue accelerates underneath the acquired growth, and whether adjusted EBITDA margins expand toward the level the premium valuation assumes. Acceleration on those fronts validates the durability premium; a slowdown once the deals annualize is the bear's signal.

Peer Cohorts (Per Segment, With Filing Citations)

IoT Products & Services (reported)

IoT Solutions (reported)

Methodology Note

Fundamentals sourced from SEC EDGAR filings. Current price from Databento. The priced-in inversion and valuation x-ray are computed by the boothcheck engine; narrative composed by AI from the structured data.

Sources

Q2 fiscal 2026 results, May 2026 · Q2 fiscal 2026 guidance · Q2 fiscal 2026 results

View the full interactive DGII report on boothcheck