What happened

Cohu, Inc. (NASDAQ:COHU) stock increased 27.1% in September, according to data from S&P Global Market Intelligence. The semiconductor equipment company's shares enjoyed substantial gains following earnings-forecast revisions and ratings upgrades.

So what

As a relatively small company with a roughly $670 million market cap, Cohu is prone to big swings related to ratings news and changes in earnings forecasts. The company saw favorable developments on both of those fronts last month.

According to Zacks Investment Research, the average analyst estimate for Cohu's full-year earnings increased from $1.46 per share in July to $1.54 per share in September. On the ratings front, ValuEngine shifted the stock from buy to strong buy on Sept. 1, and Needham & Company upgraded its rating on the stock from hold to buy in a note published Sept. 18.

A microchip set in a circuit board

Image source: Getty Images.

Now what

Even after gaining more than 70% year to date, Cohu still trades at a reasonable-looking 15 times forward earnings estimates. The company is also growing earnings at a rapid clip, and has a forward price-to-earnings-growth ratio of just 0.01. The stock looks attractive based on these metrics, but they don't tell the whole story.

Cohu's long-term outlook appears to be strengthening, but investors should keep the cyclical nature of the business in mind. The chart below tracks the company's price and diluted earnings per share over the last decade:

COHU Chart

COHU data by YCharts.

Earnings have historically fluctuated in relation to research and development phases, and periods when customers have new chips to introduce. Trading at 10-year highs doesn't necessarily mean that shares are overpriced at current levels, but investors should proceed with the understanding that the company's earnings reports might not be as strong a couple years down the line.

Cohu next reports earnings on Oct. 26 and is expected to record profits of $0.39 per share -- up from $0.14 per share in the prior-year period.

Keith Noonan has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.