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TheStreet Open House

Why Digi International (DGII) Is Down Today

NEW YORK (TheStreet) -- Digi International  (DGII) fell 15.3% to $10.24 on Friday after the company announced first-quarter earnings and revenue guidance that fell short of analysts expectations.

The company reported revenue of $47.3 million, up 0.7% from the $47 million it posted in the year-ago quarter. Net income was 3 cents per diluted share, compared to $1.2 million, or 5 cents per diluted share, in the same period one year earlier. The company expects revenue for the fiscal year 2014 to be between $195 million and $205 million, "with a most likely annual revenue of approximately $198 million" because it expects "a reduction in forecasted product purchases from certain customers." This range falls below consensus estimates.

"Company revenue did not meet expectations due to some customer push-outs," said chairman and CEO Joe Dunsmore in a company statement. "Growth products and services increased 5.9% over the prior year highlighted by strength in our cellular product line. We remain excited about our long-term prospects in the Internet of Things marketplace."

The stock had a volume of 498,767, compared to its average of 89,824. It hit a high of $10.88 and a low of $10.23 for the day. It also has a one-year high of $12.75 and a one-year low of $8.51.

TheStreet Ratings team rates DIGI INTERNATIONAL INC as a Buy with a ratings score of B. TheStreet Ratings Team has this to say about their recommendation:

"We rate DIGI INTERNATIONAL INC (DGII) a BUY. This is driven by a number of strengths, which we believe should have a greater impact than any weaknesses, and should give investors a better performance opportunity than most stocks we cover. The company's strengths can be seen in multiple areas, such as its revenue growth, largely solid financial position with reasonable debt levels by most measures, expanding profit margins and increase in stock price during the past year. We feel these strengths outweigh the fact that the company has had sub par growth in net income."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • DGII's revenue growth trails the industry average of 22.4%. Since the same quarter one year prior, revenues slightly increased by 8.7%. This growth in revenue does not appear to have trickled down to the company's bottom line, displayed by a decline in earnings per share.
  • DGII has no debt to speak of therefore resulting in a debt-to-equity ratio of zero, which we consider to be a relatively favorable sign. Along with this, the company maintains a quick ratio of 5.41, which clearly demonstrates the ability to cover short-term cash needs.
  • DIGI INTERNATIONAL INC's earnings per share declined by 11.1% in the most recent quarter compared to the same quarter a year ago. The company has suffered a declining pattern of earnings per share over the past two years. However, we anticipate this trend to reverse over the coming year. During the past fiscal year, DIGI INTERNATIONAL INC reported lower earnings of $0.23 versus $0.29 in the prior year. This year, the market expects an improvement in earnings ($0.37 versus $0.23).
  • The gross profit margin for DIGI INTERNATIONAL INC is rather high; currently it is at 54.44%. Regardless of DGII's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, DGII's net profit margin of 3.98% is significantly lower than the industry average.
  • Compared to where it was a year ago today, the stock is now trading at a higher level, regardless of the company's weak earnings results. Looking ahead, the stock's rise over the last year has already helped drive it to a level which is relatively expensive compared to the rest of its industry. We feel, however, that the other strengths this company displays justify these higher price levels.
  • You can view the full analysis from the report here: DGII Ratings Report

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