Digi International Inc. (DGII) DCF Valuation & Fundamental Primer
Digi International Inc. (DGII) currently trades at $44.14 with an enterprise value of $1.91B. Our proprietary institutional model rates Digi International Inc. at 70/100 (Grade: B+ · Quality Software Operator). The current market price prices in an implied 5-year revenue CAGR of 7.2% vs. historical growth of 8.7% (Fairly Priced to Fundamentals).
Institutional fundamental teardown of Digi International Inc. (DGII) covering SEC 10-K/10-Q cash flow conversion, SBC dilution friction, and Reverse-DCF valuation hurdles.
Digi International Inc. (DGII) 3-Scenario DCF Valuation Range
Stress-test DGII's 5-year growth, target FCF margin, WACC, terminal methodology, and SBC/dilution friction in real time.
Split between 5-Year Explicit Cash Flows and Discounted Terminal Value
2D Institutional Valuation Sensitivity Heatmap
Implied share price & upside/downside spread across 25 valuation states (Current Price: $44.14).
| WACC \ Terminal | 1.5% | 2.0% | 2.5% | 3.0% | 3.5% |
|---|---|---|---|---|---|
| 8.5% | $52.99 +20% | $56.48 +28% | $60.55 +37% | $65.36 +48% | $71.13 +61% |
| 9.3% | $47.29 +7% | $50.04 +13% | $53.20 +21% | $56.86 +29% | $61.15 +39% |
| 10.0% | $42.60 -3% | $44.81 +2% | $47.32 +7% | $50.18 +14% | $53.48 +21% |
| 10.8% | $38.68 -12% | $40.48 -8% | $42.51 -4% | $44.80 +1% | $47.40 +7% |
| 11.5% | $35.34 -20% | $36.84 -17% | $38.51 -13% | $40.37 -9% | $42.46 -4% |
Institutional Software Quality Scorecard (70/100 · Grade B+)
Solid software model with clear operating leverage, partially offset by standard SBC or moderate burn.
Elite deferred revenue float; FCF exceeds operating income by >20%
Minimal dilution friction; management compensation aligned with shareholders
Sub-par gross margins; higher cost of delivery or hardware/services mix
Moderate leverage or cash burn; monitor liquidity runway
Core Investment Strengths & Moats
- High-grade cash conversion: FCF is 192% of EBIT driven by upfront annual collections
- Low dilution friction: SBC is only 0.0% of revenue
Key Operational & Dilution Risks
- Lower software gross margins (62.9%), indicating higher hosting or service delivery drag
Reverse-DCF Solver: What Growth is Priced Into DGII?
Market implies 7.2% annual revenue growth over next 5 years (7.2% dilution-adjusted), in line with company run-rate.
Headline Reverse-DCF ignores Stock-Based Compensation (0.0% of revenue) and annual share dilution (0.0%/yr). Accounting for both requires 7.2% 5-year revenue CAGR to justify $44.14/sh on a true per-share economic cash flow basis.
Digi International Inc. (DGII) 5-Year Fundamental Forecast
| Statement Line Item | TTM Audited Base | TTM | Y1 | Y2 | Y3 | Y4 | Y5 |
|---|---|---|---|---|---|---|---|
| Revenue | $430.2M | $430.2M | $467.5M | $508.0M | $552.0M | $599.8M | $651.7M |
| Gross Profit | $270.7M | $270.7M | $294.1M | $319.6M | $347.3M | $377.4M | $410.0M |
| Operating Income (EBIT) | $56.3M | $56.3M | $61.1M | $66.4M | $72.2M | $78.4M | $85.2M |
| Stock-Based Compensation (SBC) | $0 | $0 | $0 | $0 | $0 | $0 | $0 |
| Unlevered Free Cash Flow (FCF) | $108.0M | $107.9M | $117.3M | $127.4M | $138.5M | $150.5M | $163.5M |
| SBC-Adjusted True Cash Flow | $108.0M | $107.9M | $117.3M | $127.4M | $138.5M | $150.5M | $163.5M |
Software & Cloud Services Peer Comparables & Rule of 40 Regression
Rule of 40 vs. EV / Revenue Multiple Regression
OLS Fit: EV/Rev = -18.8 + 0.60 × (Rule of 40) · R² = 76%Stocks below the gold regression line trade at a discount relative to their Rule of 40 compounding efficiency.
| Company | Ticker | Market Cap | TTM Revenue | Gross Margin | FCF Margin | Rule of 40 | SBC % Rev | EV / Rev |
|---|---|---|---|---|---|---|---|---|
| Digi International Inc. | DGII | $1.64B | $430.2M | 62.9% | 25.1% | 33.7% | — | 4.2× |
| ServiceNow | NOW | $152.61B | $10.98B | 79.2% | 31.1% | 54.2% | 15.9% | 13.9× |
| Workday, Inc. | WDAY | $50.35B | $8.00B | 75.0% | 27.4% | 43.9% | 19.0% | 6.4× |
| Salesforce | CRM | $217.10B | $37.90B | 77.2% | 32.8% | 42.8% | 8.4% | 5.8× |
| Datadog | DDOG | $46.05B | $2.68B | 80.8% | 31.1% | 57.7% | 21.3% | 17.4× |
| Snowflake Inc. | SNOW | $71.79B | $3.63B | 66.5% | 25.2% | 57.7% | 40.8% | 20.0× |
| Hubspot | HUBS | $19.89B | $2.63B | 85.0% | 21.3% | 52.7% | 19.2% | 7.7× |
| Peer Cohort Median Benchmark (N=6) | 78.2% | 29.2% | 53.5% | 19.1% | 10.8× | |||
EV / Revenue Multiple Compression Stress Test
| Multiple Scenario | EV / Revenue | Implied Enterprise Value | Implied Equity Value | Implied Share Price | Delta vs Current |
|---|---|---|---|---|---|
| Current Multiple | 4.2× | $1.79B | $1.64B | $44.14 | 0.0% |
| -20% Multiple Compression | 3.3× | $1.43B | $1.29B | $34.51 | -20.0% |
| -35% Multiple Compression | 2.7× | $1.17B | $1.02B | $27.29 | -35.0% |
| Software Baseline Floor (5.0× EV/Rev) | 5.0× | $2.15B | $2.00B | $53.74 | +19.9% |
Frequently Asked Questions: Digi International Inc. (DGII) Valuation
What is Digi International Inc. (DGII)'s intrinsic DCF valuation and implied share price?
Based on audited SEC 10-K/10-Q filings and a 5-year 3-statement discounted cash flow (DCF) model, Digi International Inc. (DGII) has a Base Case implied value of $47.21 per share (with a Bear Case of $23.62 and a Bull Case of $74.97), compared to its current price of $44.14. The model discounts projected free cash flows at a 10.0% WACC and a 2.5% terminal growth rate.
What is Digi International Inc. (DGII)'s Rule of 40 score and Free Cash Flow margin?
Digi International Inc. achieves a Rule of 40 score of 33.8%, combining a 8.7% revenue growth run-rate with a 25.1% TTM free cash flow margin on $430.2M in trailing twelve-month revenue. In the Software & Cloud Services peer cohort, the median Rule of 40 benchmark is 53.5%.
What revenue growth rate is priced into DGII stock according to Reverse-DCF analysis?
At $44.14 per share (Enterprise Value of $1.79B), our Reverse-DCF solver indicates the market is pricing in a 5-year implied revenue CAGR of 7.2%, compared to Digi International Inc.'s historical CAGR of 8.7%. Overall market expectations are rated as "Fairly Priced to Fundamentals".
How does Digi International Inc. compare to Software & Cloud Services software peers?
Digi International Inc. (DGII) earns an institutional Software Quality Score of 70/100 (Grade B+ — Quality Software Operator). Across its Software & Cloud Services peer group (NOW, WDAY, CRM, DDOG, SNOW), the cohort trades at a median EV/TTM Revenue multiple of 10.8× and a median gross margin of 78.2%.
How does Stock-Based Compensation (SBC) impact Digi International Inc. (DGII)'s valuation?
Digi International Inc. recorded $0 in TTM stock-based compensation (15.0% of revenue). When treating SBC as a cash-equivalent compensation expense, Digi International Inc.'s SBC-adjusted free cash flow yield is 6.6%, scoring 25/25 on our Shareholder Dilution Friction pillar.