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

In the published model solve dated 2026-Q2, anchored at $69.00, DIGI INTERNATIONAL INC. (DGII) is priced for today's economics sustained for ~10.9 years. boothcheck publishes no house fair value, target price, or buy/sell rating; individual model outputs and user-controlled scenarios are analytical inputs, not Boothcheck targets. Narrative composed 2026-07-25.

Generated: 2026-09-07 · Exported: 2026-09-09 · Source: https://boothcheck.com/report/DGII

Headline

What The Price Assumes (Inversion)

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

The operating-margin figure is value-band context at year 12: derived from the framework's value band, a separate calculation — not part of the priced-in solve.

Solve inputs: computed at a 10.8% cost of capital; growth searched up to the 25% self-funding ceiling.

How unusual the bet is: within-range (limited comparison data)

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.

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 8.9%); the inversion above states its own rate.

Per-Model Detail (n=15)

Economic-Unit Decomposition (Sum Of The Parts)

One or more material disclosed units has unresolved economics. Unknown/general is not evidence of homogeneity: segment SOTP is primary but incomplete, consolidated cash flow may remain only a secondary cross-check when every unit shares an enterprise basis, and one sector multiple or target margin is withheld.

No total common-equity value is stated. One or more material units lack a supported unit value. The displayed values are an indicative subtotal; consolidated debt and cash cannot be applied to a fraction of the company.

Solvency

Interest expense is not separately reported in the latest filings, so interest coverage cannot be computed.

Bullet Takeaways

• Subscription and monitoring revenue reached an annualized $184 million at the end of the March 2026 quarter, up 50% on the year, which is the line that separates Digi from the industrial hardware vendors it grew up alongside.
• The price carries roughly 43 times trailing operating income, and clearing it requires the current pace of profit growth to persist for something close to twelve years, a run comparable fast-growers completed only about 15% of the time.
• Fiscal third-quarter results land on August 5, 2026, and the number that matters is whether management's 20% to 22% full-year revenue growth guidance survives a quarter with less acquisition help behind it.

Bull Case

Something in the revenue mix has quietly inverted. The business grew up selling industrial connectivity hardware: modules, gateways and routers that go into ATMs, vending machines, cold-chain refrigeration and utility cabinets, sold once and then largely forgotten. What the March 2026 quarter shows is a company collecting $184 million on an annualized recurring basis, up 50% from a year earlier, from subscriptions and cloud monitoring attached to the same kinds of boxes. Hardware companies do not usually get to do this.

The shift shows up in the margin line rather than in a slogan. The quarterly filing attributes the gross-profit gain to a higher proportion of volume from recurring revenue, which has a higher margin, and reports that Gross profit margin was 64.0%, an increase of 190 basis points. Operating margin was 13.1% in both periods. Read that pair carefully. Profitability per dollar of sales improved and the operating line did not, because the company is spending the improvement on integrating two purchases rather than banking it. That is a choice about where to put the money, not a ceiling on what the business can earn.

Segment detail favours the newer half. IoT Solutions, the subscription and monitoring segment, grew 38.9% in the March quarter while the larger products segment grew 20.4%, and the solutions gain came as a $7.8 million increase in recurring revenue and a $2.6 million increase in one-time sales, most of it from the Jolt business bought in August 2025. Growth that arrives as a subscription is worth more than growth that arrives as a shipment, because nobody has to win it again next quarter. Against the cohort that distinction is doing real work: ITRI, the closest scaled comparison in networked industrial endpoints, saw revenue fall 4.0% over its own trailing year, and ALRM, the nearest monitoring-platform comparison, grew 8.6%.

The moat claim is modest, and the filing makes it modestly: We believe that the Digi brand has established a strong identity with our targeted customer base. In embedded industrial connectivity that is worth more than it sounds. A design win sits inside a customer's own product for years, and displacing it means requalifying the whole system, so the incumbent gets paid for inertia as well as for engineering. The balance sheet lets management press that advantage without asking shareholders for permission. Operating income covers interest roughly nine times over, and the January purchase of Particle Industries, at roughly 50 million dollars, was funded from cash on hand plus a draw on the existing revolving facility rather than an equity raise.

The bear will point out that the price already assumes all of this works. Fair. But the assumption has to be wrong in the specific way that recurring revenue reverses, and recurring revenue is the part of this business least likely to.

Bear Case

Here is the sentence a holder has to sit with: this is a thirteen-percent-operating-margin business being priced as though a decade of compounding had already been demonstrated. The price sets the operating business at roughly 43 times trailing operating income. Invert that and the demand is specific. Either operating profit grows at close to the fastest rate the company can fund out of its own cash flow for about twelve years, or the operating margin climbs from 13.3% today to roughly 21% and stays there. Neither has happened. Both are being paid for now.

Twelve years is the load-bearing number, and it is fragile in a measurable way: every percentage point of growth the company gives up takes roughly two years off that horizon. Among companies that have grown this fast, only about 15% held the pace for even a decade. If growth settles instead into the high single digits that the mature end of this cohort actually delivers, the multiple has nowhere to go but toward what the earnings-power methods support, and the price currently sits about five and a half times above where those earnings-power methods land.

The margin half of the demand is where the cohort gets uncomfortable. Digi's trailing operating margin is 13.3%. ITRI runs 13.0% and ALRM runs 13.1%, which is to say Digi already earns what scaled peers in both of its segments earn. The names above that line are structurally different companies: NSSC at 19.9% is a security manufacturer with its own factory economics, and UI at 35.8% sells through a direct, community-driven distribution model almost nobody has replicated. Reaching the low twenties is not a matter of executing the current plan harder. It is a matter of becoming a different kind of company.

The annual filing names the frictions in the way it should. Digi is leaning harder on third parties to sell, and says its expansion efforts may increase the percent of our revenue driven through distributors and resellers or heighten our reliance on certain distributors and resellers. Demand arrives slowly, because the sales cycle associated with certain of our products is typically lengthy. And the technology underneath resets without warning: new or changed industry standards can also cause demand for our products to fluctuate or render our products obsolete. Each of those is ordinary for the industry. What is not ordinary is a price that gives twelve years of clean execution the benefit of the doubt on top of them.

Two of the last three years of growth were also bought rather than grown. Jolt closed in August 2025 for an estimated $148.5 million in cash and Particle in January 2026 for roughly 50 million dollars. Acquired revenue counts, and integrating it is real work, but it flatters the organic comparison for exactly four quarters and then stops. Meanwhile net debt sits near 1.8 times operating profit and the share count has risen about 2% a year across the last four years. Neither is dangerous. Both mean the growth being paid for is arriving with a small, steady leak underneath it.

Valuation

Start with what the price has to assume. Today's $66.85 sets the operating business at about 43 times trailing operating income, and inverting that multiple at a 10.7% cost of capital produces a demand rather than a forecast: operating profit compounding at close to the fastest rate the business can fund from its own cash flow, sustained for about twelve years. The useful property of a demand stated that precisely is that it can be checked.

The methods used to triangulate the business disagree, and the shape of the disagreement carries most of the information. Peer-multiple methods sit about 2.2 times under the price. The earnings-power methods, which capitalize what the company earns today and credit no growth at all, sit about five and a half times under it, and the asset-value methods about six times under. Only the forward cash-flow methods reach the price, and one of them gets there only because its end-state assumption holds the exit multiple exactly where it stands now instead of letting it compress. When a single family of method reaches the price and every static family sits well below, the premium is a bet on durability, which is precisely the quality no static method is built to price.

The concrete version of the demand is the margin. Reported operating margin was 13.1% in the March 2026 quarter, unchanged from a year earlier even as gross margin improved, because the improvement went into integration and operating expense. On a trailing basis the figure is 13.3%. For the price to rest on demonstrated economics rather than on duration, that number has to reach roughly 21% and hold there for about a decade. Management's guidance speaks to the top line, 20% to 22% revenue growth for fiscal 2026, and is silent on the margin path, which is where the price is doing its heaviest lifting.

The cohort sharpens the question without settling it. UI earns a 35.8% operating margin on $3.1 billion of revenue and ATEN earns 17.2% on $299 million, so margins in the low twenties and above clearly exist in this neighbourhood, but they belong to businesses with either unusual distribution or unusual scale. Digi reported $253.2 million of revenue across the first half of fiscal 2026 and has neither yet.

Underneath all of it the balance sheet is unremarkable in the useful sense. Net debt runs near 1.8 times operating profit, operating income covers interest roughly nine times over, and the company is not burning cash. The revolving facility carried a weighted average rate just under 5% as of March 31, 2026. Nothing there forces a decision. The twelve-year assumption will be tested by the income statement, quarter by quarter, and not by a lender.

Catalysts

The next scheduled information event is the fiscal third-quarter report, due after the close on August 5, 2026. It is the first print in which Particle Industries, acquired on January 27, 2026 for roughly 50 million dollars in cash, has been owned for a full comparable quarter, which makes the organic-versus-acquired split easier to read than it was in May. Management has guided to 20% to 22% revenue growth for fiscal 2026. The distance between that range and the reported figure is the cleanest available read on how much of the recent pace was purchased.

Product cadence has picked up through the summer. Digi introduced DANI, an artificial-intelligence network-operations agent embedded in its device-management platform, followed by the TX65 family of rugged 5G vehicle and industrial routers and a ConnectCore 95 development kit for embedded module customers. None of these moves a single quarter. Embedded module launches run on a longer clock: a design win locked this year shows up as shipment volume two and three years out, which happens to be the horizon the price is underwriting.

The financing question is smaller but worth watching. The Particle purchase was funded partly by drawing on the senior secured revolving facility, whose rate resets off short-term benchmarks. Digi has now bought growth twice inside six months, in August and January. How the next one is paid for, if there is a next one, will tell you more about management's read on its own organic pace than any guidance range will.

Peer Cohorts (Per Segment, With Filing Citations)

IoT Products & Services (reported)

• ATEN (A10 NETWORKS, INC.)
• FY2025 10-K: …of business-critical traffic, including large enterprise data centers, hybrid and cloud infrastructures, and service provider networks. Customers rely on our capabilities to help deliver resilient application experiences, manage large-scale traffic volumes, and protect infrastructure from evolving cyber threats. 9…
• FY2025 10-K: …technology, industrial, retail, financial, gaming, education and government. Since inception, our customer base has grown rapidly. We sell substantially all of our solutions through our high-touch sales organization as well as distribution channels, including distributors, value-added resellers and system…
• EXTR (EXTREME NETWORKS, INC.)
• FY2025 10-K: …and an extensive portfolio of software applications that deliver AI-enhanced access control, network and application analytics, as well as network management. All can be managed, assessed, and controlled from a single pane of glass on premises or from the cloud. • Provide high-quality insourced customer service and…
• FY2025 10-K: …and to sell directly to certain strategic accounts. As an independent networking vendor, we seek to provide products that, when combined with the offerings of our channel partners, create compelling solutions for end-user customers. • Maintain and extend our strategic relationships. We have established strategic…
• CALX (Calix, Inc)
• FY2025 10-K: …provider customers include: ALLO Communications, LLC; Connect Holding II LLC (dba Brightspeed); CityFibre Holdings Limited; Conexon Connect, LLC; Cox Communications, Inc.; Gridiron Fiber Corp. (dba Lumos, a T-Mobile Fiber company); Hunter Communications; ICS Advanced Technologies; Jade Communications, LLC; Rally…
• FY2025 10-K: …cycles and seasonal buying patterns of our customers. More specifically, our customers tend to spend less in the first fiscal quarter as they are finalizing their annual capital spending budgets, and in certain regions, customers are also challenged by winter weather conditions that inhibit outside fiber deployment.…
• ADTN (ADTRAN Holdings, Inc.)
• FY2025 10-K: …for multi-gigabit service delivery over fiber or alternative media to homes and businesses. Services & Support Segment The Services & Support segment offers a comprehensive portfolio of network design, implementation, maintenance and cloud-hosted services supporting its Subscriber, Access & Aggregation, and Optical…
• FY2025 10-K: …in segments that we consider viable revenue opportunities. We are actively engaged in developing and refining technologies to support data, voice and video transport primarily over IP/Ethernet and optical network architectures. This includes optical transport, packet demarcation and aggregation, synchronization and…
• UI (UBIQUITI INC.)
• FY2025 10-K: …and the Company's user community where customers can interface directly with our R&D, marketing, and support teams. Our technology platforms were designed from the ground up with a focus on delivering highly-advanced and easily-deployable solutions that appeal to a global customer base. 4 Table of Contents We offer a…
• FY2025 10-K: …and provide the related software platforms, worldwide through a network of over 100 distributors, on-line retailers and direct to customers through our webstores. Ubiquiti is focused on democratizing network technology on a global scale. Our devices play a role in creating networking infrastructure in over 200…
• ITRI (Itron, Inc.)
• FY2025 10-K: …associated devices. Networked Solutions - This segment primarily includes a combination of communicating endpoints (e.g., smart meters, modules, endpoints, and sensors), network infrastructure, network design services, and associated headend management and application software designed and sold as a complete solution…
• FY2025 10-K: ; and the implementation and installation of associated devices. Networked Solutions - This segment primarily includes a combination of communicating endpoints (e.g., smart meters, modules, endpoints, and sensors), network infrastructure, network design services, and associated headend management and application…

IoT Solutions (reported)

• IOT (SAMSARA INC.)
• FY2025 10-K: …ability to drive safer operations, increase business efficiency, and achieve their sustainability goals, all to improve the lives of their employees and the customers they serve. We provide an end-to-end solution for operations. Our solution connects physical operations data to our Connected Operations Platform,…
• FY2025 10-K: …our revenue from subscriptions to our Connected Operations Platform. Our business model focuses on maximizing the lifetime value of our customer relationships, and we continue to make significant investments to grow our customer base. Our Solution We are helping drive the digital transformation of physical operations…
• ALRM (ALARM.COM HOLDINGS, INC.)
• FY2025 10-K: …and the service provider partners who install and maintain our solutions. The Alarm.com platform enables our service provider partners to address the needs of a broad range of residential and commercial customers. They can deploy interactive security, video monitoring, property automation, access control, energy…
• FY2025 10-K: …include: ◦ Drive SaaS and license revenue growth by expanding the solutions our service providers deploy. We will continue to focus on helping our service provider partners succeed in driving the adoption of our full suite of residential and commercial services. We provide sales and marketing resources to help our…
• NSSC (NAPCO SECURITY TECHNOLOGIES, INC)
• FY2025 10-K: …from our U.S. facility in Amityville is an advantage over other companies in the security industry that have moved customer service functions overseas to countries such as India and Philippines. Our dealers and customers rely substantially on the ability to communicate real-time to experts who can provide clear and…
• FY2025 10-K: …and universities have large endowments which are starting to be utilized to address this critical issue. Security equipment and services focused on education has reached over $3 billion in revenues and this segment is still in the early stages as many K-12 schools, colleges and universities have still not addressed…
• ITRI (Itron, Inc.)
• FY2025 10-K: …associated devices. Networked Solutions - This segment primarily includes a combination of communicating endpoints (e.g., smart meters, modules, endpoints, and sensors), network infrastructure, network design services, and associated headend management and application software designed and sold as a complete solution…
• FY2025 10-K: ; and the implementation and installation of associated devices. Networked Solutions - This segment primarily includes a combination of communicating endpoints (e.g., smart meters, modules, endpoints, and sensors), network infrastructure, network design services, and associated headend management and application…

Methodology Note

• Priced-in inversion: the valuation is inverted on the current price to recover the operating-income growth, duration, and steady-state margin the price embeds (ROE for financials, FFO growth for REITs).
• Valuation x-ray: the valuation models, grouped into four families (asset, earnings, relative, growth). Each model is expressed as a price/FV ratio (distance from price), not a point fair-value estimate. The spread across families is the disagreement.
• Economic-unit decomposition (SOTP): each disclosed business unit is assigned its native valuation basis before any multiple is applied. Operating units are valued on enterprise value; funded financial units are valued on their own common equity, because their borrowings fund earning assets rather than levering the parent. A company total is stated only once every material unit carries a supported value and the parent capital bridge reconciles.
• Solvency: net cash/debt, net-debt-to-NOPAT, interest coverage, and share-count CAGR from EDGAR financials (net debt / FFO and fixed-charge coverage for REITs; regulatory-capital framing for financials).
• Peer cohorts: per-segment comparables with deep-linkable SEC filing citations.

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.