On Wednesday, Piper Sandler adjusted its stance on Digi International (NASDAQ:DGII) shares, a company engaged in the Internet of Things (IoT) market, by changing its stock rating to Neutral from Overweight and lowering its price target to $29 from the previous $35.
The firm highlighted Digi International's involvement in the expanding IoT sector and its shift towards a business model focused on recurring revenue, which is expected to enhance its margin profile.
According to Piper Sandler, Digi International's management has set goals to reach approximately $200 million in Annual Recurring Revenue (ARR) and about $200 million in EBITDA by the fiscal year 2028.
These objectives are viewed as positive for investment, but the firm notes that the company's business transition is still in progress and may take time to reduce volatility significantly.
The analyst pointed out that Digi International's market share in IoT has remained unchanged, and the company is facing growth challenges due to the draw-down of its backlog.
Furthermore, there seems to be a lack of immediate catalysts to drive the stock price, although the company continues to pursue mergers and acquisitions, which could potentially act as catalysts in the future. Historically, the management has demonstrated an ability to create value for shareholders.
Piper Sandler's revised valuation reflects a balance of these factors, leading to the decision to downgrade the stock and reduce the price target. The new target is set against the backdrop of the company's ongoing transition and current market dynamics.
InvestingPro Insights
As Digi International (NASDAQ:DGII) navigates through its business model transition towards recurring revenue, real-time data and analysis from InvestingPro offer additional context for investors. The company's market capitalization stands at $958.47 million, with a high earnings multiple reflected in a P/E ratio of 67.97. Despite this high multiple, Digi International maintains a solid gross profit margin of 58.2% over the last twelve months as of Q2 2024, underscoring the company's ability to retain a significant portion of its sales as gross profit.
InvestingPro Tips highlight a mixed outlook: while analysts expect net income growth this year and the company has been profitable over the last twelve months, two analysts have revised their earnings forecasts downwards for the upcoming period. Additionally, Digi International does not currently pay a dividend, which may influence investment decisions for income-focused shareholders. However, the company's strong return over the last five years and the fact that liquid assets exceed short-term obligations suggest a stable financial footing.
For investors seeking a deeper dive into Digi International's financials and future prospects, additional InvestingPro Tips can be found at https://www.investing.com/pro/DGII. Use coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription, offering access to an expansive range of tips beyond the two provided here.
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