Valuation Scorecard: Stock Rating F-Lowest (4/10/24)-Cohu Inc (COHU).

As reflected at the current price of $32, what future Cohu operating performance is the market anticipating? To achieve average annual stock market performance of 9.0% over the next 6 years, Cohu shares will need to reach $53. To achieve Upper quartile performance, Cohu’s stock price will need to reach $62 by 2029.

Executive Summary

• Key Cohu characteristics: above average financial strength, instability, low profitability, and very low expected growth. A big negative influence on Cohu’s valuation is its poor Growth.
• Low valuation, below market shareholder returns. Current valuation levels are below average relative to the Cohu Peer Group. Recent market returns have underperformed the Cohu Peer Group. Total shareholder returns expected to significantly lag the overall equity market. Based on current investor expectations, Cohu shares should reach a level of $31 by 2029 — an -0.5% per year total shareholder return. A 2029 stock price of $53 would reflect median performance and a price of $62 would be required to reach upper quartile performance.
• Growth has been Cohu’s biggest valuation weakness. Historical growth has been very low relative to the Cohu Peer Group and forecasted growth is relatively very low. Revenue Growth, Asset Growth, and EPS Growth have lagged. These factors have negatively affected market perceptions of Cohu. Cohu’s historical income statement growth and balance sheet growth have diverged. Revenue growth has paralleled asset growth; earnings growth has fallen short of equity growth driving erosion in return on equity. Cohu’s consensus growth expectations are lower than historical growth.
• Asset Turnover, Pretax ROA, and Return on Equity are group lagging. These factors have negatively affected market perceptions of Cohu. The company has very low cash and will have to work to generate attractive investments and improve valuation.
• Cohu’s risk profile is neutral. Overall variability has been above average with above average revenue variability, only average E.P.S. variability, and above average stock price volatility. Financial Strength is only average and earnings’ expectations are very low. The debt/capital ratio has declined very significantly.

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