DIGI INTERNATIONAL INC (NASDAQ:DGII) – A Quality Stock Worth Considering

DIGI INTERNATIONAL INC (NASDAQ:DGII) was identified through our Caviar Cruise screen, which focuses on high-quality companies with strong fundamentals. The company, which specializes in IoT connectivity solutions, demonstrates several traits that align with quality investing principles. Below, we examine why DGII stands out.

Key Strengths of DIGI INTERNATIONAL

• High Return on Invested Capital (ROIC): DGII boasts an impressive ROIC (excluding cash and goodwill) of 50.82%, well above the 15% threshold set by our screen. This indicates efficient use of capital to generate profits.
• Strong EBIT Growth: The company has delivered a 5-year EBIT growth rate of 36.90%, reflecting improving operational profitability.
• Low Debt Burden: With a Debt-to-Free Cash Flow ratio of 0.67, DGII could repay its debt in less than a year using current cash flows, signaling financial stability.
• Exceptional Profit Quality: The 5-year average Profit Quality stands at 321.51%, meaning the company converts net income into free cash flow at an outstanding rate.

Fundamental Analysis Summary

Our fundamental report assigns DGII a rating of 6 out of 10, highlighting its strengths in profitability and financial health. Key takeaways include:

• Profitability: DGII scores well above industry peers in margins, with a 10.07% net profit margin and 61.11% gross margin.
• Valuation: The stock trades at reasonable multiples, with a P/E of 16.28, below both the industry and S&P 500 averages.
• Growth: While recent revenue growth has slowed, the company has a strong track record, with 5-year EBIT growth outpacing many competitors.

Why Quality Investors Should Take Note

DGII operates in the growing IoT sector, providing essential connectivity solutions. Its high ROIC, low debt, and strong cash flow generation make it a candidate for long-term holding. While past growth has been solid, investors should monitor future revenue trends to ensure sustained performance.

For more quality stocks, explore our Caviar Cruise screener.

Disclaimer

This is not investment advice. Always conduct your own research before making investment decisions.