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We Ran A Stock Scan For Earnings Growth And Digi International (NASDAQ:DGII) Passed With Ease

The excitement of investing in a company that can reverse its fortunes is a big draw for some speculators, so even companies that have no revenue, no profit, and a record of falling short, can manage to find investors. But as Peter Lynch said in One Up On Wall Street, 'Long shots almost never pay off.' Loss making companies can act like a sponge for capital - so investors should be cautious that they're not throwing good money after bad.

So if this idea of high risk and high reward doesn't suit, you might be more interested in profitable, growing companies, like Digi International (NASDAQ:DGII). While this doesn't necessarily speak to whether it's undervalued, the profitability of the business is enough to warrant some appreciation - especially if its growing.

See our latest analysis for Digi International

How Fast Is Digi International Growing?

Generally, companies experiencing growth in earnings per share (EPS) should see similar trends in share price. That means EPS growth is considered a real positive by most successful long-term investors. We can see that in the last three years Digi International grew its EPS by 15% per year. That's a good rate of growth, if it can be sustained.

It's often helpful to take a look at earnings before interest and tax (EBIT) margins, as well as revenue growth, to get another take on the quality of the company's growth. The good news is that Digi International is growing revenues, and EBIT margins improved by 3.7 percentage points to 9.5%, over the last year. Both of which are great metrics to check off for potential growth.

The chart below shows how the company's bottom and top lines have progressed over time. For finer detail, click on the image.

earnings-and-revenue-history
earnings-and-revenue-history

Fortunately, we've got access to analyst forecasts of Digi International's future profits. You can do your own forecasts without looking, or you can take a peek at what the professionals are predicting.

Are Digi International Insiders Aligned With All Shareholders?

Insider interest in a company always sparks a bit of intrigue and many investors are on the lookout for companies where insiders are putting their money where their mouth is. Because often, the purchase of stock is a sign that the buyer views it as undervalued. However, small purchases are not always indicative of conviction, and insiders don't always get it right.

Over the last 12 months Digi International insiders spent US$91k more buying shares than they received from selling them. Although some people may hesitate due to the share sales, the fact that insiders bought more than they sold, is a positive thing to note. We also note that it was the President, Ronald Konezny, who made the biggest single acquisition, paying US$99k for shares at about US$19.85 each.

The good news, alongside the insider buying, for Digi International bulls is that insiders (collectively) have a meaningful investment in the stock. As a matter of fact, their holding is valued at US$36m. That's a lot of money, and no small incentive to work hard. Despite being just 2.4% of the company, the value of that investment is enough to show insiders have plenty riding on the venture.

While insiders already own a significant amount of shares, and they have been buying more, the good news for ordinary shareholders does not stop there. That's because on our analysis the CEO, Ron Konezny, is paid less than the median for similar sized companies. For companies with market capitalisations between US$1.0b and US$3.2b, like Digi International, the median CEO pay is around US$5.5m.

The CEO of Digi International only received US$2.4m in total compensation for the year ending September 2021. That looks like a modest pay packet, and may hint at a certain respect for the interests of shareholders. CEO remuneration levels are not the most important metric for investors, but when the pay is modest, that does support enhanced alignment between the CEO and the ordinary shareholders. It can also be a sign of a culture of integrity, in a broader sense.

Is Digi International Worth Keeping An Eye On?

One positive for Digi International is that it is growing EPS. That's nice to see. Better yet, insiders are significant shareholders, and have been buying more shares. That makes the company a prime candidate for your watchlist - and arguably a research priority. It's still necessary to consider the ever-present spectre of investment risk. We've identified 2 warning signs with Digi International (at least 1 which is a bit concerning) , and understanding them should be part of your investment process.

There are plenty of other companies that have insiders buying up shares. So if you like the sound of Digi International, you'll probably love this free list of growing companies that insiders are buying.

Please note the insider transactions discussed in this article refer to reportable transactions in the relevant jurisdiction.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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