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NEW YORK ( TheStreet) -- Marvel Entertainment (MVL) shares have climbed 35% since I rated it "buy" on Dec. 16, rising twice as fast as the S&P 500 Index. Despite the sound gain and the company's weak second-quarter performance, I remain optimistic about its prospects.
On Aug. 4, the company said its second-quarter earnings dropped 38% to $29 million, or 37 cents a share, as revenue fell 26% to $116 million. Its operating margin deteriorated from 54% to 42% and its net margin declined from 30% to 25%.
The weak quarterly results have pushed shares down 5.5% in the past two days, and the stock may have further to fall. But based on price, growth potential and financial strength, Marvel is an outstanding company and should be added to any growth investor's watch list.Marvel became a standalone film studio in 2008. The conversion allowed it to maximize profits on the highest-margin film genre: superhero flicks. The company has a vault of 5,000 proprietary characters and a built-in fan base from its comic-book business. Its latest box-office release, Iron Man, grossed $585 million worldwide. The film has garnered praise from moviegoers and critics, earning a 93% approval score from movie-review Web site Rotten Tomatoes. Iron Man proved that movie success starts with good storytelling. Special effects should complement the plot, not be the plot itself. Now that Marvel is creating its own films and distributing them with the help of Paramount Pictures, its stock is more sensitive to box-office earnings. A bomb could stifle earnings, but a hit could make the shares jump.