Is there money to be made in ... mobile homes?

Warren Buffett seems to think so. Earlier this decade, as the economy boomed and the Great Recession was still just a twinkle in Greenspan's eye, the CEO of Berkshire Hathaway (NYSE: BRK-A) (NYSE: BRK-B) made a bold bet on builders of modular homes (think mobile homes without the wheels) when he brought the nation's largest manufacturer of such things in-house for $1.7 billion. To Buffett's way of thinking, it was a simple bet: great company, great price.

But even before that, other investors were seeing attraction in the twin trends of building cheap housing for those who need it, and manufacturing RVs (aka modular homes with wheels) for a baby boomer generation just a few short years away from hitting the road. These were the trends that inspired Motley Fool Hidden Gems to recommend buying shares of Drew Industries (NYSE: DW), a key parts supplier to industries both modular and mobile. These were the trends I cited when naming Drew a superball stock last month. And these were the trends that helped produce a blockbuster quarter for Thor Industries (NYSE: THO) earlier this week. Quarterly sales soared 51% in fiscal Q4 2010, capping a year of 50% sales growth. Net income rose 64% to $0.78 per share for the quarter, and 570% for the year -- $2.08 per share.

Time to bail out?
Announcing the results, Thor Chairman Peter Orthwein took the opportunity to crow over the firm's "improved margins," driven by "cost-cutting and process efficiency." Thor's announced acquisition of Heartland RV last month promises to keep the revenues growing, which when married to improved margins should mean good things for profits as well. So ... why can't I shake the feeling that the investors who bid up Thor shares this week, instead have been unsnapping seat belts and bailing out with their winnings?

Here's why: As superb as Thor's profits appeared last year, free cash flow actually topped out at $88.4 million -- a good 20% below reported net income. Now don't get me wrong -- that's stronger cash flow than you'll find at industry standard-bearer Winnebago (NYSE: WGO), which is nearly the only alternative, independent RV company left in this decimated industry. Still, at its current price, Thor sells for nearly 20 times annual free cash flow, which seems a steep price to pay for a company that most analysts believe will only grow at 16% per year going forward.

In short: There may be money to be made in mobile and modular homes -- but I doubt there's much profit potential remaining at Thor.