Let's not forget, though, that even Lucas and Marvel can make mistakes. Lucas, after all, teamed up with Universal Pictures (now a unit of General Electric
Such is the risk of tethering your company's fortunes to the ever-fickle entertainment world. No matter how big your name, the payoff is always uncertain until the receipts are counted. That makes speculating on the future of the business a very difficult task, indeed. Look no further than Disney
Will history repeat itself?
I'm not in any way claiming that Marvel is a bad company, or that it produces bad products. On the contrary, I fully admit that a disproportionate share of my own entertainment budget helped fuel the company's recent successes. I dressed my own son as Spider Man for his first Halloween, in fact, and I also own more Marvel DVDs and comics than I care to count.
My problem with Marvel is that its shares look rationally priced only if you believe it will continue to put out hit after hit, year after year. Sure, its recent earnings growth looked spectacular, but how much of that was due to the one-time effect of revamping its toy licensing deal with Hasbro
They say that pride goes before the fall. Marvel itself went through bankruptcy in the 1990s, largely from overleveraging its name and reputation. The deeper the company reaches into its vault to find the next blockbuster, and the more leverage it takes on to juice its returns, the bigger its chances of a colossal flop.
What goes around comes around
In other words, it's dangerous to look at Marvel's recent straight-up growth trajectory and presume that it will continue into the future. To sustain that level of growth, every future blockbuster needs to be bigger than the last one, and the hits need to keep on coming at an ever-more-rapid pace. It simply cannot happen forever.
I sincerely hope that Marvel has learned enough to avoid another bankruptcy. At the same time, I can't help feeling that its financial picture closely parallels deep cyclical companies like Ford
Marvel the company has kept me entertained for decades. Unfortunately, it looks like I missed my chance this past go-round with Marvel the stock. As long as its business model looks so eerily similar to some of the greatest cyclical companies in our economy, though, it seems worthy of keeping on my watch list.
The time to buy any cyclical company is when things look their worst, not when they're riding the high tide of stupendous earnings -- no matter how low the trailing P/E ratio may get. I'll wait 'til next time, and simply enjoy the entertainment Marvel provides.
Marvel, Disney, and Hasbro are all Motley Fool Stock Advisor recommendations.