Having published a number of blogs of late mentioning Return on Equity (ROE) and intrinsic valuations (HSN and DDT, I thought it a good idea to briefly discuss why we are using ROE as a key measurement of performance.

 

It revolves around the quite simple notion that a rational investor should desire an adequate return on the money they have invested, to make up for the additional risk they take by investing in a business. The ROE figure reveals the return management have achieved on shareholder funds/capital/equity, and therefore gives a return on what you are...

Management of companies generating strong cash flows, with a strong balance sheet are often left with the difficult task of maintaining growth without squandering shareholder equity in the way of overpriced acquisitions. BHP comes to mind when I think of such companies (one need only look at their attempted acquisitions of Rio Tinto and Potash Corp. of Saskatchewan Inc). Shareholders often desire the excess cash be distributed rather then see management pay excess sums for acquisitions, resulting in lower returns on their equity, and it often shows in share price weakness whenever such large scale announcements are made (NAB and BHP being recent examples). Hansen Technologies Limited appear to be a company who deal with this conundrum...

DataDot Technology Limited (DDT-ASX) may be a company many have not heard of, however I'd suggest anyone experiencing high levels of theft in their neighbourhood and or anyone with a taste for high ROE growth stories, should keep an eye on this small cap Australian company.

 

Thou shall not steal has been a commandment ignored by far too many for far too long, but it is from this that DataDot have developed a suite of property protection, identification and authentication products, most of which are covered by intellectual property laws. Their flagship product (which has been on the market for a number of years) is their DataDot technology. For those who haven't heard of the product, it is a microdot technology that is applied to items before, at or after purchase which provides the product with it own identity, somewhat similar to engraving the product. The obvious...