Thor Industries (NYSE:THO) made the transition from COVID-19 headwinds to pandemic tailwinds in its fiscal fourth-quarter 2020 results, released Monday. The recreational-vehicle (RV) manufacturer resumed full production during the quarter, months after a "virtual production standstill" in May.

The company also saw its manufacturing orders hit a record backlog on spiking demand for RVs as the pandemic continues to facilitate lifestyle changes among consumers. Is this a clear signal for further gains in the "THO" symbol, which has already appreciated 30% year to date? Below, we'll review the quarter and examine at least one caution on the shares of this RV leader. 

An RV and a nearby pitched tent are seen at night.

Image source: Getty Images.

A healthy earnings scorecard

Thor produced a slight top-line advance against the fourth quarter of fiscal 2019, as revenue inched up 0.5% to $2.32 billion. Very slight increases in the North American towable RV segment and the European RV segment offset a modest sales decline in the North American motorized RV business.

Thor's manufacturing gross margin improved by 50 basis points to nearly 15%. The company also trimmed selling, general, and administrative expense (SG&A), its most significant operating expense line item, by 70 basis points. As my colleague Lee Samaha has noted, cost-cutting has been in vogue among high-quality industrial stocks during the pandemic.

Together, these actions helped push operating margin up by 170 basis points to 6.4%, in turn propelling diluted earnings per share (with some assistance from lower-income tax expense versus the prior-year period) to a year-over-year improvement of 28%, to $2.14.

At the end of the quarter, Thor's order backlog stood at a record $5.74 billion. To illustrate what a leap this is against the fourth quarter of 2019, when Thor was dealing with a glut of inventory on dealer lots, year-over-year backlog in the North American towables, motorized, and European RV segments jumped by 300%, 216%, and 79% year over year, respectively.

In the company's earnings release, CEO Bob Martin observed that medium-term trends should be quite favorable to the RV manufacturer:

We saw increasing retail demand over the course of the quarter, driving dealer inventories to historically low levels by year end and our year-end backlog to a record high. As I have noted before, the long-term outlook for our business remains excellent. Now, with the increasing interest in the RV lifestyle from a new group of consumers, the short-to-medium-term outlook is also robust.

Martin also mentioned that long-term RV buyers tend to "trade in and trade up" for new vehicles every three to five years, making a case for longer-term benefits from the influx of new buyers. If anything, Thor's biggest immediate problem is filling demand and ensuring that its COVID-19-impacted supply chain can remain stable under production pressure.

A cautionary signal for the next few quarters

Even after its stock appreciation this year, and a near-doubling over the last trailing twelve months, Thor trades at a reasonable forward price-to-earnings multiple of 13.0. Given this low valuation, why wouldn't these shares be a persuasive buy in the manufacturing sector?

The reason, quite simply, can be explained as muscle memory among investors in the RV space, who well remember what happened the last time dealer inventories were depleted and manufacturer backlogs sat at all-time highs. This was in the midst of a strong U.S. economy in late 2017 and early 2018, a period followed by a sudden consumer pullback in discretionary spending on recreational vehicles. The industry, and Thor's stock price, have been slow to recover from that period's quick plunge in retail RV sales, despite this year's boost from the pandemic:

THO Chart

THO data by YCharts

If there's a sense of unease among investors, it's that consumer-ordering patterns in this industry can be quite fickle from year to year. A sudden curbing of retail RV demand next year as the pandemic subsides could once again lead to a rightsizing of dealer inventory and manufacturing backlogs -- and potentially lower stock prices among vehicle makers. 

Hopefully for Thor investors, this won't be the case, and instead, the company will see a smoother, more rational demand curve versus early 2018 as the pandemic gradually subsides. If Thor's share price plateaus in the near future, it will likely be due to wariness as investors wait to see exactly how the next few quarters of demand and vehicle delivery play out.