Big engines meant big profits for Cummins (NYSE:CMI) in the fourth quarter. Robust demand for engines and power generation drove sales up 35% to $2.35 billion in the fourth quarter and net income nearly tripled to $119 million. Sales of engines grew 55%, while power generation sales were up 37%.

And the stock? Oh, it was down about 10% in early trading.

While sales and earnings thumped Wall Street guesstimates, the company's forward guidance of $8.00 to $8.30 a share in 2005 earnings was below the mean number of $8.55. With analysts already worried about whether this company has neared a cyclical peak, it didn't take much to spook investors.

On the surface, the numbers looked pretty good. For the quarter, management believes they experienced the largest domestic share gain they've seen in 20 years. Despite dramatically higher commodity costs, gross margins actually grew a bit over last December and the company produced more than $430 million in free cash flow (vs. only $18 million last year).

Shipments grew at double-digit rates across the board in the fourth quarter, with engine sales for products like DaimlerChrysler's (NYSE:DCX) Dodge Ram truck (up 21%) and mining equipment (up 77%) fueling the growth. When coupled with the strong results seen by big-truck makers like Oshkosh (NYSE:OSK), it's clear that the market for heavy-duty engines is still firing on all cylinders.

Whether you believe that Cummins is at or near the peak today, there will be an eventual decline in demand and sales. The old rule of thumb is that the peak of a cycle is marked by increasing capacity and Cummins management stated that at least 40% of 2005's cap-ex spending was going toward rapid capacity expansion.

Part of what makes investing in cyclical companies difficult is that it's so counter-intuitive. Buying when business looks terrible and selling when business looks great would ordinarily be financial suicide with non-cyclical stocks, but that's precisely what you must do with cyclicals. As such, Cummins' trailing PE of 10 and EV-to-free cash flow of 11 is reason for pause. While more aggressive investors might be able to squeeze a little extra growth out of this engine maker, this Fool will be idling on the sidelines.

Want to learn more about cyclicals? Check out Jim Mueller's "Ride the Cyclical Wave."

Fool contributor Stephen Simpson, CFA, has no ownership interest in any stocks mentioned.