Investors sold off Oshkosh (NYSE: OSK) hard in the wake of Q2 earnings news Monday. Can you blame them? The news was truly awful:

  • Sales up 100% to $2.44 billion
  • $2.31 per share earned, versus a $0.28-per-share loss last year
  • Another $175 million in debt paid back, bring total debt-paydown to $1.5 billion over the past two years
  • And free cash flow that now stands at $889 million generated over the past 12 months.

Awful, awful news.

And by "awful," I mean "staggeringly successful"
CEO Robert Bohn cheerfully described a company going great guns and enjoying a "record" third quarter for "revenue, operating income, and EPS." In an industry where rivals Federal Signal (NYSE: FSS) and Terex (NYSE: TEX) are just getting by on single-digit operating margins, Oshkosh whomped past 'em both and now boasts operating margins in the 12.6% range.

So why are investors selling the stock?

All good things…
Alas, these happy times can't last. Oshkosh is enjoying profits this year almost entirely because of the M-ATV contract it won last year. When the Pentagon chose Oshkosh over rivals Force Protection (Nasdaq: FRPT), General Dynamics (NYSE: GD), and Navistar (NYSE: NAV) last year, its contract to build a new generation of all-terrain MRAPS quite likely saved the company from bankruptcy.

Now, however, the Iraq war is winding down. Public support for the Afghan war is on the wane. In short, the market for M-ATVs will dry up, sooner rather than later. When that happens, Oshkosh will be right back where it started, staring the Great Recession in the face, trying to sell pricey fire trucks to cash-strapped municipalities, and watching the clock in hopes that federal stimulus funding comes through fast enough to bolster the market for its cement mixers, telehandlers, and aerial work platforms.

Foolish takeaway
Oshkosh bulls will say that the company's P/E ratio of less than five has all these troubles baked in already. They'll doubtless point out that with a price-to-free cash flow ratio of just 3.2, the company's being discounted like there's no tomorrow. I agree.

But on the other hand, I'm not convinced there will be a tomorrow for Oshkosh. Sometimes, a cheap stock is cheap for a reason.

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General Dynamics is a Motley Fool Inside Value selection, but Fool contributor Rich Smith does not own shares of any company named above. The Motley Fool has a disclosure policy.