Investors have become much more optimistic about Winnebago (NYSE:WGO) since the recent stock market downturn in mid-March. Winnebago shares during that month-long crash (that began Feb. 20 on bad news related to the coronavirus pandemic) fell by as much as 73%, but they have since roared back and more than tripled from that March low point. After all that volatility, shares currently trade up about 25% in 2020.

Winnebago recently reported its fiscal 2020 third-quarter earnings and that report contained some good news about the RV giant's demand trends just as social-distancing efforts began relaxing around the country. But should investors bet on Winnebago today, given that its growth is so dependent on a strong and growing economy? Will the gains it's seen this year continue?

Let's take a look at the best reasons to like this stock despite the uncertain economic outlook.

A man leaning up against an RV looking up at a little boy peering out of the RV's back window, with a pond in the background

Image source: Getty Images.

A forgettable quarter

Winnebago's fiscal Q3 report is one that its shareholders would like to forget. Sales during the months of March, April, and May plunged 41% compared to a 13% increase in the prior quarter. Profitability slumped in both its towable and motor home divisions, leading to net losses overall.

But investors don't have to look hard to find encouraging signs for the business. Winnebago gained 2 percentage points of market share in the third quarter, which is roughly even with its growth rate before the pandemic struck North America. The company protected its liquidity by cutting costs, adding debt, and pausing production, too.

These wins mean that Winnebago not only successfully navigated the unusually weak selling environment, but that it also emerged with roughly the same impressive growth momentum and financial strength.

The rocky road ahead

The key focus for investors, then, is more about the health of the RV industry and the broader economy. A sustained slump in that sector means even the industry leader will be pressured by weak sales, poor pricing trends, and soft earnings growth.

For its part, Winnebago in late June imagined the potential for a quick return to normal operating conditions. Dealership backlog surged in May, executives said in the Q3 report, thanks to robust demand. "Our portfolio of premium outdoor brands continues to perform well and be desired by channel partners and end consumers alike," CEO Michael Happe told investors. Management suggested that the COVID-19 pandemic could even put a premium on its products as consumers look for entertainment options that focus on the outdoors and don't involve international travel.

Yet the stock could produce good returns for investors even if that optimistic scenario doesn't play out. Even assuming only a modest improvement in selling conditions over the next year or so, Winnebago has a good shot at deepening its hold on the RV industry while it incorporates recent acquisitions like its boating products and its Newmar brand into the broader business.

An economic slump that lasts through 2021 wouldn't be good for short-term stock returns, but shareholders got a glimpse at a potential worst-case scenario over the spring selling months and saw that Winnebago had no trouble protecting cash flow while continuing to win market share.

Waiting is an option

Cautious investors might instead want to wait until after the RV giant's fourth-quarter report before buying the stock. That announcement (set for late October) will show whether the encouraging boost in backlog translated into a quick return to sales growth. Happe and his team will also be in a better position to project operating results for fiscal 2021 thanks to extra clarity around COVID-19 outbreaks and economic growth.

Either way, though, shareholders aren't likely to lose out by holding Winnebago, with their investment being protected by factors like its industry-leading position, market-beating growth rates, and steady cash generation. Heading into the 2020 summer vacation season, the consumer discretionary stock is especially risky given surging unemployment as COVID-19 spreads. Thus, investors should only buy shares with an eye toward long-term operating gains that might not be obvious for another few quarters.