Marvel vs. Under Armour: Marvel

In the competitive spirit of college basketball's annual championship tournament, The Motley Fool brings you Stock Madness 2007! Our writers are making head-to-head arguments for their chosen stocks (but not necessarily investment recommendations -- this is, after all, a game), and you'll pick the winners with your article recommendations and Motley Fool CAPS ratings. Who will win the right to cut down the net? Let's tip things off and find out!

Two rounds ago, when you, our Foolish readers, cheered Stock Advisor selection Marvel Entertainment (NYSE:MVL) to a victory over Middleby, I said that the two things that matter most in March Madness also matter in Stock Madness. They are:

1. Match-ups.
2. Momentum.

Marvel had the momentum versus Middleby. This time -- facing Rule Breakers pick Under Armour (NYSE:UA) -- it's an even contest. Check the numbers and you'll see what I mean. While UA reported 55% revenue growth in its fourth quarter, Marvel is on pace to more than double its net income in fiscal 2007.

Get the ball to the big man ...
But Marvel has the edge in match-ups. Under Armour lacks size when compared to the comic-book king.

By size, I mean valuation and operating metrics. Foolish colleague David Meier expressed this best last month when he compared Under Armour to popular clothiers like Crocs (NASDAQ:CROX). What he found is a handful of very expensive stocks. Quoting:

"I have to say that as a value investor, this situation scares me. I don't want to pay a high price for anything, let alone great expectations. If the expectations embedded in the high price are not met, the market, which discounts the future, will revise its value downward, causing my investment to lose value."

But Dave may be understating it. Check out Marvel vs. Under Armour head-to-head in terms of their returns on assets, capital, and equity over the trailing 12 months:

Pretty evenly matched, wouldn't you say? That wouldn't mean much if these stocks were priced similarly, but they're not. Have a look:

Enterprise value-to-EBITDA allows for fair comparisons between businesses with different capital structures. Here, what it shows is that Under Armour investors are paying nearly double what they'd pay for a slice of Marvel's business.

... And they don't come bigger than Spider-Man
Some sort of huge advantage that Marvel doesn't possess might justify that gulf. But I don't see one.

Sure, Under Armour sticks it to Nike (NYSE:NKE) and others by controlling 75% of its market. But Marvel left Time Warner's (NYSE:TWX) DC Comics in the dust years ago. Today, the house of Hulk controls close to 40% of the dollar value of the comic-book publishing market.

And in terms of the other Rule Breakers criteria my opponent, Todd Wenning, referred to last round:

• Marvel is a top dog and first mover as a content creator, opening a movie studio.
• It has a massive advantage in the form of 4,000 copyrighted characters for new films and an extremely profitable R&D division.
• The stock has been an eight-bagger since David Gardner first singled it out in the July 2002 issue of Stock Advisor.
• Marvel owns one of the most well-recognized superheroes in history in Spider-Man, who will once again grace the big screen in May, adding to the $1.6 billion in global box-office receipts he's thus far produced.
• And, finally, like Under Armour, it's easy to find Marvel bears. Click here and you'll see what I mean.

Of the Rule Breakers criteria, only management has been an issue. But I'd say that's been addressed with recent changes. What's more, management's motto -- "less meetings, more productivity" -- reveals a firm that's become very shareholder-friendly, like a point guard that rarely turns the ball over.

Scoreboard
I'll be honest. I love Under Armour. I own a pair of workout clothes from the company. That's one of the reasons I defended the stock in a recent duel. Well, that, and because I'm a dyed-in-the-wool growth investor who's also a contributor to Rule Breakers.

But my best picks for Rule Breakers have been stocks that combined high growth with cheap relative multiples. Akamai Technologies (NASDAQ:AKAM), for example, was trading at a reasonable multiple to my very conservative owner earnings estimate at the time I chose it for the newsletter. It's been a four-bagger since.

Under Armour is undoubtedly a good stock to own. But it's not nearly as relatively cheap as Akamai was, or as Marvel is. That's why the comic-book king should earn your vote in this contest.

Convinced? If so, follow this link and rank Marvel "outperform" in Motley Fool CAPS. Later this week, our editors will tally your votes to determine which stocks will advance one step closer to the title.

Read our opposing entry on Under Armour, and see all our articles in the tournament.

Think you could pitch your favorite stock -- or ditch your least favorite -- in 27 seconds or less? That's what we're doing over at Motley Fool CAPS. Check out our new stock videos.

Fool contributor Tim Beyers, who is ranked 1,426 out of more than 24,900 in our Motley Fool CAPS investor-intelligence database, still owned shares of Akamai and more than 2,000 comic books at the time of publication. All of his portfolio holdings can be found at Tim's Fool profile. His thoughts on Foolishness and investing may be found in his blog. Marvel and Time Warner are Stock Advisor picks. Akamai and Under Armour are Rule Breakers picks. Middleby is a Hidden Gems selection. The Motley Fool's disclosure policy is a hero to your portfolio.