Digimarc Corporation (DMRC) climbed over 4 percent in early trading on Friday, capping a month that saw the stock gaining nearly 90 percent.
The company creates digital identities for media content that follows content regardless of its distribution, allowing corporations and enterprises to identify said content regardless of whether it’s been copied or otherwise manipulated. The company’s solid month comes after it announced a new pricing structure, one focused on global scaling that should improve efficiency for major buyers.
Small-Cap Star
Digimarc is among those companies receiving five stars from Equities.com’s Small-Cap Stars. The system, which isolates those fundamental metrics that are most correlated with growth among small-cap companies, is up over 37.25 percent since its inception.
Digimarc’s five-star rating is a sign that it features a number of characteristics that tend to predict future success for small-cap tech firms, including beating the industry average for enterprise value/invested capital, reinvestment rate, pre-tax operating rate, and cash as a percentage of revenue.
DuPont Analysis
Another explanation for the rapid rise of Digimarc’s stock this year could be found by running a DuPont Report in Equities.com’s DIY Research section.
Digimarc features a return on equity (ROE) that beats the industry average by a significant margin. However, digging deeper using the DuPont Method, one can see why Digimarc appears to be a fundamentally strong company. Its asset turnover and leverage are both lagging behind the industry average where running at industry average is typically ideal. However, by looking at data from 2011 and 2012, you can see that both of these are trending upward toward the industry average. So there’s improvement over time. What’s more, while closer to the industry average for leverage is better, it’s definitely better to be below industry average than above it.
However, the fact that these ratios are below average but the ROE is still above average is a strong sign as it points towards the single factor that would make Digimarc most attractive to an investor running a DuPont report on the company: net margin.
Digimarc’s strong, positive net margin is way ahead of most small-cap tech firms, which more-typically feature a strongly negative net margin. So Digimarc’s strong ROE is driven primarily by its ahead-of-the-curve net margin, something that should indicate company strength.
And it appears that, in 2014, investors appear to have picked up on Digimarc’s potential.
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