There are numerous steps in the semiconductor manufacturing cycle and a whole galaxy of possible plays on the industry. You can go with a big-name equipment maker like AppliedMaterials (NASDAQ:AMAT), an equipment maker supplier like Cymer (NASDAQ:CYMI), and a whole host of chip makers and contract fabs. And then you have a back-end play like Teradyne (NYSE:TER), which focuses on equipment used to test the performance and quality of wafers.

Teradyne's fourth-quarter results suggest that the industry (or at least this company) is on its way off the cyclical trough. Revenue was up more than 21% over last year (and up 18% from the third quarter), and margins improved nicely on a similar comparison. Earnings comparisons are clouded a bit by some restructuring charges and gains on sale, but whether you look at numbers based on generally accepted accounting principles or non-GAAP numbers, the company is doing a lot better today.

Other stats back up the notion that business is better. Teradyne's orders were up 71% on an annual basis and up 26% from the third quarter, and the book-to-bill for the period was above 1. What's more, the backlog grew more than 8% from the third quarter. Now while it's certainly true that a recovery could be quashed by a sudden downturn in the economy, the company is nevertheless seeing solid business from customers in the consumer, auto, communications, and military markets.

Now, the downside to the story is as follows. The stock is already up about 50% from its lows, and other players in this space like Advantest (NYSE:ATE), Agilent (NYSE:A), and Credence (NASDAQ:CMOS) have rebounded as well. What's more, the notion of a cyclical recovery in semiconductors and related capital equipment isn't exactly news.

All in all, that makes assessing the stock a little tricky. My valuation models suggest that a recovery is already pretty well baked into the price, and that there isn't a lot of upside left. That said, recoveries can sometimes surpass your initial estimates, and you can miss out on the story. Furthermore, you can look at what's happened in the energy sector over the last year, when enthusiasm for strong near-term cyclical growth has pushed many stocks above reasonable long-term goals.

In plainer English, just because Teradyne may look a little rich today, that doesn't mean that investors won't push it up even higher if or when the notion of a recovery in semiconductors starts hitting Bubblevision in a big way.

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Fool contributor Stephen Simpson has no financial interest in any stocks mentioned (that means he's neither long nor short the shares).