Last update on 2024-06-07

Digi (DGII) - Piotroski F-Score Analysis for Year 2023 (Final Score: 7/9)

Analyzing Digi (DGII) based on Piotroski F-Score for 2023, final score 7/9 reflecting strong financial health through profitability, liquidity, and operational efficiency.

Short Analysis - Piotroski Score: 7

We're running Digi (DGII) against the Piotroski 9-criteria scoring system to assess profitability, liquidity, and operating efficiency:

The Piotroski F-Score determines a company's financial strength on a scale of 0 to 9 using nine criteria related to profitability, liquidity, and operating efficiency. Digi International (DGII) scored a 7 out of 9, which reflects a generally strong financial position. Profitability: The company has shown positive net income and cash flow from operations, with an increasing Return on Assets and Operational Cash Flow surpassing Net Income for 2023. Liquidity: Digi increased its Current Ratio from 2022 to 2023, demonstrating better ability to cover short-term liabilities. However, their leverage ratio also increased, suggesting more dependence on debt. Operational Efficiency: They improved their Gross Margin slightly and maintained high compared to the industry, but their Asset Turnover Ratio showed a minor decline indicating a small setback in efficiency. A rise in outstanding shares was noted, potentially impacting shareholder value.

Insights for Value Investors Seeking Stable Income

With a Piotroski F-Score of 7, Digi International (DGII) shows a strong and stable financial performance, making it a good investment candidate. The company's consistent net income, positive cash flows, and improving profitability metrics suggest good financial health. However, potential investors should be aware of the increased leverage and share dilution, which may pose some risks. Overall, Digi International appears to be a solid choice for a long-term investment.

For those who are interested in delving deeper into the specifics, the subsequent section provides a comprehensive exploration of the criteria.

Profitability of Digi (DGII)

Company has a positive net income?

Net income is an essential metric to evaluate a company's profitability over a specific period.

In 2023, Digi International (DGII) reported a net income of $24,770,000. This positive net income indicates that the company is profitable, thus adding 1 point to the Piotroski score. Over the past 20 years, DGII's net income has consistently grown, barring a few exceptions such as a significant negative net income in 2003 (-$37,274,129). This trend of steady profitability underscores strength in the company's financial health, making the positive net income of 2023 a favorable indicator for both investors and stakeholders.

Company has a positive cash flow?

Cash Flow from Operations (CFO) is a measure of the amount of cash generated by a company’s regular operating activities. A positive CFO indicates a healthy cash inflow from core business functions.

In 2023, Digi's (DGII) Cash Flow from Operations stands at $36,751,000, which is positive. This is a strong indicator of the company's ability to generate cash from its core operations. Over the last 20 years, the CFO trends show a generally positive trajectory, with only slight dips observed in 2015 (-$2,778,000) and some lower values in 2013 ($1,809,000). Generally, consistent improvements are visible. Hence, for 2023, Digi's CFO being positive earns 1 point in Piotroski Analysis.

Return on Assets (ROA) are growing?

Change in ROA for Digi (DGII) assesses the trend in the profitability of the company's assets over time. It measures how effectively the company generates profits from its assets, showcasing management efficiency and operational success.

The Return on Assets (ROA) of Digi (DGII) has increased from 0.0263 in 2022 to 0.0293 in 2023, showing an improvement. This 0.003 increase in ROA indicates that the company has become more efficient in converting its assets into net earnings. Consequently, this is a positive trend and therefore, one point is added for this criterion. However, when compared to the industry median ROA which is significantly higher at 0.3903 in 2023, Digi's performance falls short. Despite the positive increment, Digi still has room for improvement to reach or surpass the industry benchmark.

Operating Cashflow are higher than Netincome?

Operating Cash Flow higher than Net Income indicates robust cash generation and efficient earnings quality.

In 2023, Digi (DGII) reported an Operating Cash Flow (OCF) of $36,751,000, which notably surpasses its Net Income of $24,770,000. This trend garners a point, reflecting a positive scenario where the company is proficiently generating cash from its core operations. Historically, over the last 20 years, Digi has displayed variability in OCF, including negative cash flow in 2018 and low values in specific years such as 2014 and 2015. However, recent trends, particularly from 2019 onwards, have shown a stronger cash flow, indicative of improving operational efficiencies and a resilient business model. This positive differential in 2023 underscores Digi's robust cash generation capabilities, which is a favorable signal for stakeholders.

Liquidity of Digi (DGII)

Leverage is declining?

Change in Leverage examines whether a company's financial leverage has increased or decreased, indicating their reliance on debt.

The leverage ratio of Digi (DGII) increased from 0.2418 in 2022 to 0.2804 in 2023. This negative trend signifies that the company has taken on more debt relative to its equity, which might raise concerns about financial risk. Exploring Digi's leverage over the past two decades reveals significant fluctuations, spiking in the current years. This escalating debt reliance can impact Digi's financial stability and may result in higher costs of capital and reduced flexibility in financial planning.

Current Ratio is growing?

Current Ratio is a liquidity measure that indicates a company's ability to cover its short-term obligations with its short-term assets, hence reflecting short-term financial health.

Digi's Current Ratio increased from 1.7222 in 2022 to 1.933 in 2023. The increase is a positive indicator, suggesting improved liquidity and an enhanced ability to cover short-term liabilities with current assets. Interestingly, over the last 20 years, Digi's Current Ratio fluctuated significantly, often staying well above the industry median. The industry median for 2023 was 1.8276, indicating that despite Digi’s lower current ratios recently, its liquidity still exceeds the sector average. Therefore, Digi receives 1 point for an improved Current Ratio in 2023.

Number of shares not diluted?

Change in shares outstanding measures the variation in the number of shares issued by a company. Companies that reduce their number of outstanding shares often signal a buyback initiative or efforts to increase shareholder value. It also indicates potential confidence in internal finances. Conversely, an increase in shares outstanding generally dilutes existing shareholders' equity.

For Digi (DGII), the outstanding shares have increased from 35,031,000 in 2022 to 35,820,000 in 2023, indicating an increase of 789,000 shares. This increase in shares outstanding yields a score of 0 in Piotroski Analysis. Comparing decade-long data, one can observe a steady rise in share count with minor fluctuations, notably an uptick since 2019. This generally suggests multiple rounds of equity financing or stock-based compensation plans. Over the last 20 years, Digi's outstanding shares have nearly doubled, reflecting substantial capital raising or aggressive equity-based compensations. While not ideal for the Piotroski metric, this trend might align with the company's growth strategies or financing needs. However, it dilutes shareholder value over time, which is a downside if not coupled with proportional earnings growth.

Operating of Digi (DGII)

Cross Margin is growing?

Gross Margin reflects the percentage of revenue that exceeds the cost of goods sold (COGS). An increasing Gross Margin indicates better financial health and operational efficiency.

In 2023, Digi's Gross Margin increased to 0.5669 from 0.5571 in 2022. This positive change marks an improvement and demonstrates the company's enhanced efficiency in managing its production costs. With the industry median Gross Margin standing at 0.3903 in 2023, Digi's higher Gross Margin further emphasizes its superior performance compared to the broader industry. This metric's growth earns Digi a point in the Piotroski score, showing that the company is managing its operations better than its peers. Historically, Digi's Gross Margin has been volatile, but the current uptrend is a sign of robust cost management.

Asset Turnover Ratio is growing?

The change in Asset Turnover analyzes whether a company's efficiency in utilizing its assets to generate sales has improved. It is crucial for assessing operational performance.

Comparing the Asset Turnover ratios of 0.5266 in 2023 and 0.527 in 2022, we observe a slight decrease. The ratio declined by 0.0004, indicating marginally lower efficiency in utilizing assets to generate revenue in 2023 compared to 2022. Given this trend, we do not add any point under the Piotroski Analysis for this criterion. Reflecting on the historical data, Digi (DGII) has seen higher Asset Turnover values in previous years, with a peak of 0.786 in 2004. The general trend over the last two decades shows a decrease in Asset Turnover, implying a potential decline in asset utilization efficiency over time.