The personal computer, the smartphone and the Internet revolutionized society.

We are now on the threshold of another epochal transformation: the Internet of Things, by which everyday objects are integrated into a data-sharing network. IoT is one of the hottest investment opportunities.

Cisco Systems, IBM, OracleTexas Instruments and other darlings of the financial press are moving into the booming IoT sector. The problem is, the investment crowd has already piled into these well-known large-capitalization stocks and bid up their shares.

But Digi International (DGII - Get Report)  is a small-cap rocket that produces crucial proprietary technology for almost any entity involved in IoT. Digi International enjoys an advantageous position as an early adopter that could make it the next Apple of IoT.

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It is much easier to generate market-thumping gains from the thousands of investments outside the S&P 500 than by attempting to eke out a few modest gains from the overvalued big boys.

That is where Digi International comes in. With a market cap of just $281.17 million but a dominant position in IoT, the company is poised to outperform.

IoT devices exchange information with each other via a central server, without a human being as intermediary. They use sensors to communicate actionable data, such as fuel levels, inventory capacities or room temperatures, through a wired or wireless network to a software application.

IoT is giving birth to driver-less cars, self-calibrating medical devices and smart homes, among other things. IoT also automates the delivery of services and billing, supply chains, and warehouses.

Smart utility meters are an especially promising application.

A pure, small-cap play on this trend is Digi International.

Founded in 1985, Digi International was one of the earliest entrants into the field. The company makes IoT devices and platforms and also provides IoT cloud-based and software-as-a-service solutions for IoT.

Digi International is scheduled to release its fourth-quarter and full fiscal year operating results on Oct. 27, after the market closes. The average analyst expectation is that full-year earnings will come in at 46 cents a share, compared with 26 cents in fiscal 2015 and just 7 cents a share in fiscal 2014.

Shares of Digi International are trading above $10 apiece. The average analyst one-year price target is $14.50, which would represent a robust gain of 34%.

The stock's trailing 12-month price-earnings ratio is 17.68, compared with its industry's average trailing P/E of 24.7. As a key maker of the brains behind IoT, this company is a no-brainer.

Buy the stock now, while it is still a good value.


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John Persinos is an investment analyst at Investing Daily. At the time of publication, Persinos owned stock in CSCO, ORCL and AAPL.