Before the dot-com craze, manufactured-home builders experienced their own bubble years. This was in the late 1990s, and the stocks have yet to recover. Do Monday's results from Champion Enterprises (NYSE:CHB) suggest a recovery is finally under way?

Well, results were a mixed bag. Revenue for the second quarter jumped 17% while earnings skyrocketed because of an income tax benefit related to the reversal of a deferred tax asset valuation. But excluding the benefit, operating earnings were down compared with the same quarter last year. The problem is that overall manufactured housing conditions remain difficult. The one bright spot has been sales momentum, but this looks to be softening and may have been due to more temporary rebuilding efforts after hurricanes.

Hurricanes in the southeast provided at least a temporary boost to the industry as the Federal Emergency Management Agency, or FEMA, orders replacement homes. But this clearly won't last forever, and it's unclear how profitable sales to the government agency are. In a presentation I attended last year, competitor Palm Harbor Homes (NASDAQ:PHHM) alluded to the fact that margins are indeed lower. While this is clearly a positive for those needing relief, it can hamper the profit margins of related companies.

Champion's operating cash flow generation was decent during 2005 and also strong back in 2003, even though it reported a pretty big earnings loss because of a discontinued operations charge. However, cash flow from operations was negative in 2004. Not exactly the kind of consistent, cash-generating track record as noted by Foolish Rule Maker Investing. But Champion is a leader in its industry: Shouldn't that count for something?

Unfortunately, being a leader in a horrible industry makes for an uphill battle. The manufactured home industry has yet to fully recover from the easy credit and subsequent oversupply status the space found itself in about five years ago. To illustrate, at one point during the go-go years, Champion ran nearly 340 retail sales facilities but completely exited retail operations last year.

The average retail selling price for a Champion-built home was $179,000 last year, demonstrating that the economics of purchasing a manufactured home are compelling, especially for lower-income families and individuals. Warren Buffett's Berkshire Hathaway (NYSE:BRKa) (NYSE:BRKb) clearly identified the potential when it purchased competitor Oakwood Homes out of bankruptcy in early 2004. He already owned Clayton Homes and as a result has a fair amount of exposure to the manufactured home industry, including the lending side that imploded and ruined insurance firm Conseco (NYSE:CNO) back when it acquired Green Tree Financial in 1998. At the time, Green Tree was the largest manufactured-home lender. Berkshire appears to have claimed that title and identified an opportune investment during a bottom in the industry.

The manufactured home industry has recovered from its historical lows, but I can't find many reasons to invest in the space right now. As for Champion, its stock isn't overly pricey, but it can be argued that it has been a value over the past five years as investors wait for the group to recover.

Unfortunately, industry conditions remain grim and near-term results could worsen because of a decrease in order backlogs, as confirmed by Champion and Palm Harbor. If you must tread in the space, at least consider Fleetwood Enterprises (NYSE:FLE), which also has exposure to the RV industry and is a possible play on the aging, leisurely demographic.

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Fool contributor Ryan Fuhrmann has no financial interest in any company mentioned. The Fool has an ironclad disclosure policy. Feel free to email him with feedback or to discuss any companies mentioned further.