I’ve been in and around the entertainment industry for almost twenty years, and so I’ve always kept a watchful eye on how individual company financials look, as well as those of the industry as a whole. One of the more intriguing plays in this sector is Lions Gate Entertainment (NYSE:LGF), which produces, acquires, and distributes a well-diversified library of content.

The trick with any entity involved in the production of content, whether it be film or TV or digital media, is that it is impossible to predict success. It’s a roll of the dice, so all a studio can do is try and create good content.

Lions Gate has a pretty good track record in this arena, and I encourage investors to read the 10-K for the complete list. Acquisition depends on buying the right content for the right price and then generating revenue from that library. Distribution is where the big money is, because distribution is an oligarchy of which Lions Gate is known for specific types of content (mostly horror and lower-budget comedies). There is also much less risk involved when you aren’t putting up a zillion dollars to make a movie.

Now, over the past few years, Lions Gate was heavily criticized for not being able to turn some really great content into big money. They had $150 million in operating losses in 2009, cut expenses drastically in 2010 and turned that into a $50 million profit, and generated $62 million in the fiscal year ending March 2011. Over the past year or so, the company was engaged in a very public fight with vulture capitalist Carl Icahn, who scooped up tons and tons of Lions Gate stock in an effort to take over the company. He failed.

The stock has doubled since October, and much of that rise is likely attributable to anticipation for The Hunger Games film franchise. The film did great at the box office and will result in a tremendous revenue boost for the company in the near-term, along with more revenue boosts as sequels are produced. This leads to two questions for investors. First, has the film’s success been baked into the stock price? Second, is Lions Gate a stock investors should be looking at?

The first question is easy. YES. This is very much a “buy the rumor, sell the news” situation. We’ve already seen the stock sell off about 10% from its recent highs, and I think it would be a mistake to buy in at this point. If you have profits, I’d sell and book your gains.

The more difficult question is what happens to Lions Gate going forward. If you watched the stock price of Pixar and Marvel before Walt Disney (NYSE: DIS) acquired them, then you know that because box office cannot be predicted, growth rates cannot be predicted, either. Nor can one peg revenue.

This is the same problem I have with IMAX Corp. (NASDAQ: IMAX). With both IMAX and Lions Gate, there are relatively predictable revenue streams as far as new installations/maintenance and existing libraries, respectively, that you can take a stab at. But with IMAX, the rev-share component is totally unpredictable, and with Lions Gate, there’s the box office prediction problem.

All you can do in these cases is take a guess — which will have a standard deviation of infinity — and therefore is no guess at all. The one thing both Pixar and Marvel had going for them was that both studios consistently made great movies and/or had a built-in audience. That’s why Disney purchased them.

With Lions Gate, based on their production track record, I would stick with them for the long haul unless things change. They have enough franchises to generate solid revenue. If you check out their list of TV shows, it’s a quality slate. Earnings will be erratic, but over the long term, I think shareholders will be rewarded.

That being said, I would wait for the enthusiasm to die down. You generally want to look for a 50% retracement of recent gains, suggesting a buy-in point at around $11.50. Then I would routinely sell calls against half that position, so that you are effectively decreasing your buy-in price over the longer term.

As of this writing, Lawrence Meyers did not hold a position in any of the aforementioned securities. He is president of PDL Capital, Inc., which brokers secure high-yield investments to the general public and private equity. You can read his stock market commentary at SeekingAlpha.com. He also has written two books and blogs about public policy, journalistic integrity, popular culture and world affairs.