Simply Marvelous

Results for Motley Fool Stock Advisor pick Marvel Enterprises (NYSE: MVL  ) continue to be marvelous. In the just-reported quarter, net sales increased 41%, and operating margins jumped from 31% to 47%. Net income, impacted by an increase in tax rates from 16% to 41%, was down 23.9%, but still handily beat estimates. The market liked the news, driving the stock 10% higher in early trading.

It doesn't hurt that Marvel has a stellar business model. It avoids capital risk, letting movie studios like Sony (NYSE: SNE  ) take the capital risks to produce those summer blockbuster hits featuring Marvel characters. A money machine, Marvel ended the latest quarter with $292 million in cash. Moreover, it will use $160 million to pay off its entire debt and still expects to end the year with $200 million in cash.

How's this for a Fantastic Four? The company has a return on equity of 62%, a return on assets of 32%, and a return on investment of 38%. The fourth? Marvel trades (based on the company's usually conservative guidance) at 24 times 2004 earnings.

The good news goes on with annual profit growth of 10% to 20%. And the company still has not harvested Disney's (NYSE: DIS  ) two favorite areas -- movie animation and direct-to-video productions. Television is also largely untapped. Might Viacom's (NYSE: VIA  ) Paramount TV unit, without Friends, be up for a deal? Or is movie partner 20th Century Fox, a unit of News Corp. (NYSE: NWS  ) , a more logical choice for the small screen -- or both?

OK, that's pure speculation. But the point is that there are areas for growth for Marvel. Impressive as they are, management's estimates may yet prove conservative. And why own Hasbro (NYSE: HAS  ) or Mattel (NYSE: MAT  ) ? Marvel's toy business has the lowest margins of any operating division, but they are still more than twice those at the major toy companies.

Marvel is simply marvelous and soon to be debt-free. It's no longer hidden, but it's still worth a hard look.

Since W.D. first read about Marvel inMotley Fool Stock Advisorin July 2003, it's up more than 500%. Since it was recommended again in December 2003, it's up more than 200%.

Fool contributorW.D. Crottyowns stock in Disney and News Corp.

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