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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.

The company lacks the bureaucracy and banality of large-cap stocks that offer entertainment exposure such as Time Warner ( TWX) and Walt Disney ( DIS). And its stock has outperformed such peers this year.

Despite the run-up, Marvel is still affordable. Shares trade at a price-to-earnings ratio of 15, a 42% discount to the industry.

And best of all, Marvel is a well-run company. Its balance sheet holds zero debt and more than $119 million of cash reserves. Its profit spreads are wide and the company's niche focus gives it an advantage over studio rivals. Marvel's small size and slow film turnaround should ensure an ongoing string of box-office winners.

Iron Man 2 isn't out until May 2010, but if its predecessor is any indicator, the film will please fans and vacuum up dough. Marvel is a worthwhile stock at its current price, even though it doesn't pay dividends, but the market could be due for a pullback. We rate the company "buy."

-- Reported by Jake Lynch in Boston.

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