Last week, Fool contributor Steven Mallas covered how film studio Lions Gate Entertainment (NYSE:LGF) had outbid Motley Fool Stock Advisor recommendation Time Warner (NYSE:TWX) for the distribution rights to the film Hard Candy. Lions Gate is a scrappy competitor that is willing to go toe-to-toe with the big boys.

And, speaking of competitors, Lions Gate took a chance last year and purchased rival Artisan Entertainment. So far, that risk has paid off handsomely. After the market closed yesterday, the company reported a modest $0.10 a share of net income (after adjustments -- unadjusted EPS was $0.03) for the third quarter, a significant improvement from the year-ago quarterly loss of $0.45 a share.

While net income met analyst earnings projections, it is the free cash flow from operations (after debt service), which went from a negative $25 million to a positive $32 million ($0.33 a share), that should impress investors. Because the company has $290 million in bank loans and subordinated notes, it's reassuring to see cash being produced.

Analysts expect the company to earn $0.26 this fiscal year (which ends March 31) and $0.39 a share the following year. That works out to a forward price-to-earnings ratio of 28 -- a higher multiple than that at more diversified entertainment companies such as News Corp. (NYSE:NWS) and Viacom (NYSE:VIAB).

One reason for that premium is the pending $5 billion purchase of Metro-Goldwyn-Mayer (and its lion icon) by a consortium that includes Sony (NYSE:SNE) and Comcast (NASDAQ:CMCSA). MGM's greatest asset may have been its library of 4,000 modern films. Lions Gate's large library of 8,000 movie titles, and its reasonable $1.4 billion enterprise value, may make it takeover bait.

Lions Gate is no blushing bride looking for a Romeo. It's busy with a full slate of feature films. It's also charting new waters with Motley Fool Stock Advisor recommendation Marvel Enterprises (NYSE:MVL) to produce direct-to-DVD animated movies. The company is doing everything it can to exceed analyst expectations.

The stock has been roaring ahead 94% over the last 52 weeks. Good earnings, gushing free cash flow, and the potential of a buyout are attracting investors. But the stock is no longer value-priced. Unless you feel the upcoming movie slate is particularly strong, there is no reason to rush in at today's prices.

Fool contributor W.D. Crotty likes to go to the movies, and owns stock in News Corp. and Marvel. Click here to see The Motley Fool's disclosure policy .