DGII · Digi International
Conviction · Low · more likely to lag the S&P 500 over the next three months
Wrong if: a daily close above $78.85
Note written ·
How this view changed
- · Rating cut from Medium to Low. The note's kill line was crossed, 10 November 2026: The shares closed at $65.05 on 10 November 2026, below the $69.36 kill line (the 4 September 2026 close) in the previous note.
Price against the kill line
29.7% clear of its kill line on the 13 November 2026 close.
How to read this
This note expects the shares to lag the market, so its kill line sits above the price: a close above the red mark would prove the view wrong. Prices run from low on the left to high on the right. The dot is where the stock closed on 13 November 2026, left of the mark while it is below the line; a dot right of the mark has closed through it.
The scale is stretched near the line, so close calls are easy to see. More than 8% from the line, the stock reads well clear, with a hollow dot to show the figure is off the drawn scale.
The kill line is the research note's own test. The portfolio sells on business facts, not on a price. How the portfolio decides
Three months against the kill line
Daily closes, to . Red: the kill line, a daily close above $78.85, on record since 11 November 2026. The shares are down 33.5% since the close; the S&P 500 is down 2.1% over the same sessions. Figures in the note can cover a different window.
Kill line
A daily close above $78.85, the 27 October 2026 close and the highest of the 20 sessions before the fiscal fourth-quarter report, which would show the shares leading; or first-quarter fiscal 2027 revenue above the $144 million top of guidance alongside a raised fiscal 2027 recurring-revenue outlook.
Research onlyNot in the portfolio.
The business · as of
Digi International sells cellular routers, embedded modules, Opengear console servers and recurring IoT software and services to industrial, enterprise and public-sector customers. It earns from hardware sales and subscriptions. Revenue was $139 million in the quarter to 30 June 2026.
What is changing, and what follows · as of
- What is changing now
- On 11 November 2026 Digi beat its fiscal fourth-quarter guide but guided fiscal 2027 annual recurring revenue growth to at least 15%, from 30% in fiscal 2026.
- What follows for the company
- Memory costs pressed gross margin to 63.7%, and the $130 million Disruptive Technologies purchase is funded from the revolving credit facility, adding debt.
- What follows for its customers, suppliers and competitors
- Competitors Lantronix (LTRX) and Semtech (SMTC) sell into the same cellular IoT market; memory makers' pricing, tied by the CEO to AI data-center demand, sets Digi's input costs.
What the price assumes · as of
At the 13 November 2026 close (filed figures to 5 August 2026) the shares trade at 43.2 times earnings and 4.3 times sales, for an enterprise value of $2,184 million; that holds only if revenue grows the guided 10–15% in fiscal 2027 while operating margin stays near the 16.5% of the latest filed quarter.
Key figures from the filings · Technology
Quarter to 30 June 2026, filed 5 August 2026; valuation at the 13 November 2026 close
- Revenue, latest quarter ($M)
- 139
- Revenue, change on a year (%)
- +29.0
- Gross margin (%)
- 64.8
- Operating margin (%)
- 16.5
- Free cash flow, four quarters ($M)
- 136
- Net cash, cash less debt ($M)
- −80.2
- Price to earnings (×)
- 43.2
- Enterprise value to sales (×)
- 4.3
All filed numbers
What Digi International reports to the SEC in its quarterly and annual filings. Each group states its period and filing date once; a figure dated otherwise says so. Built from the filings known on .
| Quarter to | Revenue ($M) | On a year (%) | Gross margin (%) | Operating margin (%) |
|---|---|---|---|---|
| first filed | 139 | +29.0 | 64.8 | 16.5 |
| first filed | 131 | +25.1 | 64.0 | 13.1 |
| first filed | 123 | +17.9 | 62.4 | 13.3 |
| first filed | 114 | +8.8 | 63.9 | 12.5 |
| first filed | 108 | +2.2 | 63.5 | 13.9 |
| first filed | 105 | −3.0 | 62.1 | 13.1 |
| Pre-tax income ($M) | 21.3 |
| Net income ($M) four quarters: 48.7 | 15.7 |
| Diluted shares, change on a year (%) against the quarter to 30 June 2025 | +3.4 |
| Operating cash flow ($M) | 138 |
| Capital spending ($M) | 2.4 |
| Free cash flow ($M) | 136 |
| Cash and short-term investments ($M) | 28.0 |
| Debt ($M) long-term debt | 108 |
| Net cash, cash less debt ($M) | −80.2 |
| Deferred revenue ($M) +82.5% on a year | 73.0 |
| Backlog, orders not yet delivered ($M) +51.1% on a year | 240 |
| Receivables ($M) | 62.8 |
| Inventory ($M) | 45.0 |
| Shareholders' equity ($M) | 685 |
| Market value ($M) | 2,104 |
| Enterprise value, market value plus net debt ($M) | 2,184 |
| Enterprise value to sales (×) | 4.3 |
| Enterprise value to operating income (×) | 30.9 |
| Price to earnings (×) | 43.2 |
| Price to book value (×) | 3.1 |
| Free-cash-flow yield (%) | 6.5 |
Short interest (FINRA, settled 15 October 2026, published 26 October 2026): 5.3% of shares outstanding sold short, 5.3 days of average trading to cover, +1.4% since the previous report.
| Window | Bought | Sold |
|---|---|---|
| 90 daysfrom | $0 | $0 |
| 12 monthsfrom | $0 | $11.2M |
Linked companies · as of
The thesis
Digi International's shares are more likely to lag the S&P 500 over the next three months than to lead it. The fiscal 2027 outlook slows annual recurring revenue (ARR) growth from 30% to at least 15%, and the shares kept falling after the 11 November 2026 report. The first-quarter fiscal 2027 report, expected in early February 2027, settles whether recurring growth holds above that floor while memory costs press margins.
The quarter itself beat the company's own guide. Revenue was $143 million, up 25%, above the $138–142 million range Digi set on 5 August 2026, and adjusted earnings per share of $0.78 matched the top of its range, per the company's release. Year-end annual recurring revenue was $197 million, up 30%.
The market judged the outlook. The shares closed at $66.96 on 11 November 2026, $58.44 on 12 November 2026 and $55.43 on 13 November 2026. On 12 November 2026 Piper Sandler kept a Neutral rating and lowered its price target to $67.
The rating is Low because the business is delivering while the next dated event, the first-quarter report, is about twelve weeks away. Memory costs and the cash-funded Disruptive Technologies purchase both land in fiscal 2027.
Bullish and bearish views on Digi International Inc.
The bull case on Digi International Inc. (DGII), in brief: the fourth quarter cleared the guide. The bear case: recurring growth halves in the guide.
Bull case
- The fourth quarter cleared the guide. Revenue of $143.3 million beat the $140.3 million consensus and adjusted EPS of $0.78 beat $0.76, per Benzinga on 11 November 2026. Fiscal 2026 revenue was $535 million, up 24%, with adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) of $148 million, up 37%.
- Fiscal 2027 revenue guidance tops estimates. Digi guided 10–15% revenue growth on 11 November 2026, which Benzinga put at $588.7–615.5 million against a $580.7 million estimate.
- The recurring-revenue target moved up a year. Management said on the 11 November 2026 call that it now expects to reach its $200 million annual recurring revenue goal in fiscal 2027 rather than fiscal 2028.
- Orders ahead of revenue are building. At 30 June 2026 backlog was $240 million, up 51.1% from a year earlier, and deferred revenue was $73 million, up 82.5% (10-Q filed 5 August 2026).
- Margins widened and cash flow is strong. The quarter to 30 June 2026 had a 16.5% operating margin, and free cash flow over the four quarters to that date was $136 million, per the 10-Q.
- Insiders show no open-market selling. Form 4 filings dated 12 November 2026 show share awards and tax withholding at $67.13 on 9 November 2026 for the CEO, CFO and three other officers, with no open-market sales.
Bear case
- Recurring growth halves in the guide. Fiscal 2027 ARR growth is guided to at least 15%, against 30% in fiscal 2026. On the 11 November 2026 call, Stephens analyst Tommy Moll said the guide implies roughly 13% growth without Disruptive Technologies.
- Memory costs press margins. Fourth-quarter gross margin was 63.7%, down 20 basis points. First-quarter adjusted EBITDA is guided to $39.5–41.0 million, below the $42 million just reported. The CEO called the cost pressure "unavoidable" on 11 November 2026.
- Supply limits growth. The CEO said on the call that "demand is not as big a challenge as supply is," and that customers are being asked to commit 9 to 12 months ahead.
- The first-quarter guide is in line. Adjusted EPS of $0.71–0.75 brackets the $0.73 estimate, and revenue of $140–144 million brackets $141.9 million, per Benzinga on 11 November 2026.
- The deal adds debt and pays off late. The $130 million Disruptive Technologies purchase is funded from the revolving credit facility, on top of $69 million of debt at 30 September 2026. Management called fiscal 2027 a "year of transition" for the business, with about $9 million of adjusted EBITDA expected only in fiscal 2028.
- Cash flow had help from taxes. Fourth-quarter operating cash flow rose to $42 million from $28 million, which the release attributes mainly to deferred tax changes under the One Big Beautiful Bill Act. Diluted shares rose 3.4% from a year earlier in the quarter to 30 June 2026.
Price setup
Daily closes ran $63.21 on 6 November 2026, $67.13 on 9 November 2026, $65.05 on 10 November 2026, $66.96 on 11 November 2026, $58.44 on 12 November 2026 and $55.43 on 13 November 2026. The shares are down 33.5% over three months from the $83.34 close of 17 August 2026. The last close is 36.2% below the 52-week intraday high of $86.84 set on 7 August 2026.
As of 13 November 2026, the 50-day moving average was $72.02 and the 200-day moving average was $64.14. The last close is below both. The 52-week closing low is $37.77, set on 17 November 2025.
Catalysts ahead
- ~30 November 2026 (est.): Expected closing of the $130 million Disruptive Technologies acquisition, subject to regulatory approval. Closing starts the debt-funded integration and the shift of Disruptive's customers to subscriptions, the source of part of the at-least-15% fiscal 2027 recurring-revenue guide.
- ~4 February 2027 (est.): Fiscal first-quarter 2027 results. Tests the $140–144 million revenue guide and the $39.5–41.0 million adjusted EBITDA guide, and shows whether recurring revenue is tracking toward the $200 million goal management now expects in fiscal 2027.
What would change the view
A daily close above $78.85, the 27 October 2026 close and the highest of the 20 sessions before the fiscal fourth-quarter report, which would show the shares leading; or first-quarter fiscal 2027 revenue above the $144 million top of guidance alongside a raised fiscal 2027 recurring-revenue outlook.
What it trades with
Digi sells cellular routers, embedded modules, console servers (Opengear) and recurring Internet of Things software and services. Its shares trade with small-cap industrial technology and IoT hardware names more than with the broad index. Its gross margin depends on DRAM and flash memory prices, the input costs that affect other hardware makers. The CEO tied that cost pressure to AI data-center demand for memory on 11 November 2026. Roth's Scott Searle asked on the same call about Opengear's prospects with hyperscalers, the one direct link to data-center spending.
The evidence, claim by claim (8)
- Fiscal fourth-quarter 2026 revenue was $143 million, up 25%; adjusted EPS $0.78, GAAP diluted EPS $0.38; adjusted EBITDA $42 million, up 43%. Digi fiscal fourth-quarter 2026 results release · as of
- Year-end annual recurring revenue was $197 million, up 30%: IoT Products & Services $64 million (up 100%, mainly Particle) and IoT Solutions $133 million (up 11%, organic). Digi fiscal fourth-quarter 2026 results release · as of
- Fiscal 2027 guidance: revenue growth of 10–15%, adjusted EBITDA growth of 12.5–17.5%, annual recurring revenue growth of at least 15%, including Disruptive Technologies. Digi fiscal fourth-quarter 2026 results release · as of
- Fiscal first-quarter 2027 guidance: revenue $140–144 million, adjusted EBITDA $39.5–41.0 million, adjusted EPS $0.71–0.75 against a $0.73 estimate. Digi results release; Benzinga · as of
- Fiscal fourth-quarter 2026 gross margin was 63.7%, down 20 basis points; the release cites rising component costs, most notably memory. Digi fiscal fourth-quarter 2026 results release · as of
- Backlog was $240 million, up 51.1% from a year earlier; deferred revenue $73 million, up 82.5%; free cash flow over four quarters $136 million. Digi 10-Q for the quarter to 30 June 2026 · as of
- Piper Sandler maintained a Neutral rating on Digi and lowered its price target to $67. Benzinga headline · as of
- Debt was $69 million and cash $30 million at quarter end, for net debt of $39 million. Digi fiscal fourth-quarter 2026 results release · as of
Sources