What happened

Shares in heating, ventilation, air conditioning (HVAC) company AAON (NASDAQ:AAON) rose 13.7% in May, according to data from S&P Global Market Intelligence. The move comes on the back of a startlingly strong set of first-quarter earnings released in on May 7.

You'd think the global economy hadn't slowed at all when looking at the industrial company's 21% year-over-year rise in net sales in the first quarter. The bumper sales increase fed through into a whopping 150% increase in net income in the quarter to $21.8 million.

An air conditioning concept.

Image source: Getty Images.

The reason? It comes down to a couple of key factors. First, according to the earnings release, AAON was the beneficiary of " multiple orders for temporary hospitals in the New York area" as a result of the COVID-19 pandemic. That's testimony to AAON's reputation for high-quality customized HVAC solutions.

Second, management actually reduced the average time to deliver equipment in the quarter because of the addition of several sheet metal fabrication machines. This had the impact of boosting net sales to $137.5 million, compared with $113.8 million in the same quarter of 2019.

However, the sales boost resulted in a reduction in the backlog to $119.6 million, compared with $142.7 million at the end of the first quarter of 2019 -- something that might be a cause for concern among some investors.

So what

To reassure investors that the reduced backlog didn't spell out a future reduction in growth, management noted on the earnings release, " While business continues to remain firm, evidenced by our 92% of expected order intake in the first quarter of 2020, we are closely monitoring and adapting to COVID-19-related variables." 

Moreover, speaking on the earnings call on May 8, President Gary Fields said orders booked compared to expectations -- which were 92% of expectations in the first-quarter to the end of March -- were "kind of in that same range right now."

Now what

AAON has had a great start to the year, but part of it is due to a boost from COVID-19 that might not reoccur. In addition, there are some question marks around the spending plans of retail and restaurant customers in the light of the pandemic. Meanwhile, a forward P/E ratio of 40 times earnings suggests there's little room for error in the stock price. Time will tell.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.