Cohu Stock Could See a 70% Upward Move

Cohu Stock
Credit:iStock.com/phongphan5922

Cohu Is a Promising Growth-at-a Reasonable-Price Play

It sure is difficult to find value in this current market, especially when your search criteria require strong growth, but there are opportunities if you dig deep enough. The bull case can be made for small-cap technology growth stock Cohu, Inc. (NASDAQ: COHU), which could double in price.

In my view, Cohu has a great business, helping semiconductor manufacturers and test sub-contractors produce better products. Simply think about the precision that’s required in making semiconductors, and you’ll understand why a company like Cohu has a brisk business with tremendous upside.

With a presence in the U.S., Europe, China, Malaysia, and the Philippines, Cohu has a nice expansive global reach to many of the regions where computer chips are made.

The below chart of COHU stock shows the stock trading at over $50.00 in 2000, prior to the market meltdown that drove Cohu to below $30.00—and then $20.00—for the last decade.

Cohu Stock Price Chart

Chart courtesy of StockCharts.com

Cohu stock was drifting in a tight sideways channel from 2012 to March 2017 before finally staging a breakout at $15.00 in late March. The one-year chart shows the emergence of a bullish golden cross pattern as the 50-day moving average (MA) crossed above the 200-day MA.

Also ReadBest Semiconductor Stocks List for 2017

The stock broke above $20.00 to a high of $21.27 in April but failed to hold. Another attempt was made in June and July, but again, the attempt failed to stick.

On a risk-adjusted basis, Cohu stock is delivering alpha to investors, returning 27% year-to-date and 64% over the past year.

My Fundamental Bull Case for COHU Stock

Cohu is about delivering consistency, which is what the stock market favors and rewards. For instance, Cohu beat the consensus earnings per share (EPS) in five consecutive quarters—and in 12 of the last 14 quarters dating back to the beginning of 2014.

Revenues rebounded in 2016 after a decline in 2015. Cohu is expected to ramp up revenue growth to almost $350.0 million in 2017 and to almost $377.0 million in 2018. (Source: “Cohu, Inc. (COHU),” Yahoo! Finance, last accessed August 31, 2017.)

Cohu is also turning profits, which is pretty impressive for a company with a market cap of around $525.5 million.

The company could earn as much as $1.57 per diluted share this year and $1.76 per diluted share in 2018. Even more encouraging is the rising earnings estimates over the past 90 days. This generally implies accelerated growth and a higher share price. (Source: Ibid.)

As far as the valuation for COHU stock goes, the priceearnings multiple is slated to improve from 45.87-times trailing earnings to an attractive 11.17-times its 2018 EPS.

The price/earnings to growth (PEG) ratio of 1.14 is attractive for a small-cap technology stock and is even more attractive when you count in the free cash of about $4.00 per share.

Analyst Take: 

Based on the priceearnings multiple and the PEG ratio, there is no reason why COHU stock should not have a higher valuation. Even if Cohu stock surged 70% to $30.00, the stock would still only trade at about 20-times, which is just north of what the S&P 500 trades at.