Tough trading has weighed heavily on the Croda International (LSE:CRDA) share price in 2023. In fact, an 18% decline since the start of the year makes it one of the FTSE 100’s worst-performing stocks.
The City is largely positive on Croda shares right now. However, analysts are not exactly unanimous in their optimism. Of the 18 brokers with ratings on the stock, only nine rate the business as a ‘buy’. Meanwhile seven consider it a ‘hold’ and two regard have marked it as a ‘sell’. That’s according to stock screener Digital Look.
Should I snap the business up for my portfolio today?
Passive income stocks: our picks
Do you like the idea of dividend income?
The prospect of investing in a company just once, then sitting back and watching as it potentially pays a dividend out over and over?
If you’re excited by the thought of regular passive income payments, as well as the potential for significant growth on your initial investment…
Then we think you’ll want to see this report inside Motley Fool Share Advisor — ‘5 Essential Stocks For Passive Income Seekers’.
What’s more, today we’re giving away one of these stock picks, absolutely free!
The crash
First, let’s quickly recap why Croda’s share price has plummeted in 2023. Back in June the firm said that full-year pre-tax profits would likely range between £370m and £400m.
Analysts had been expecting profits of £440m for 2023. The announcement also suggested that profits could come in at below half the level recorded last year.
Croda explained heavy customer destocking between January and May was expected to last into the second half of the year, putting further pressure product demand. Sales volumes at its Consumer Care division dropped by double-digit percentages in the five months to May. Meanwhile, in Life Sciences sales momentum for its crop protection products rapidly cooled.
Premium pick
Trading here has been chilly of late for a couple of reasons. First, sales of its lipid delivery systems — chemicals that are used in the manufacture of vaccines — have fallen off a cliff as the threat from Covid-19 has receded.
On top of this, demand for Croda’s products has dipped as its customers brace for an economic downturn. This is a more normal phenomenon as companies aim to sell the stock they have before splashing out on more.
Given the state of the global economy more unexpected trouble could be coming the company’s way. What I have to consider is whether recent share price falls make it attractive enough for me as a long-term investor.
Today Croda’s share price continues to attract a premium rating. It trades on a forward price-to-earnings (P/E) ratio of 26 times. Can this still be justified?
The verdict
I wouldn’t go so far as to say that the company is a bargain. But this is a high-quality stock whose share price drops have attracted my attention (its share price has almost halved in just 19 months).
Make no mistake: Croda has a strong track record of generating solid investor returns. And there are several good reasons to expect it to bounce back to deliver big profits in the years ahead.
Rapid growth in the global healthcare market, for instance, bodes well for its pharmaceuticals operations. I’m especially excited by the company’s opportunities in the vaccines sector following its acquisition of Avanti Polar Lipids in 2020.
Meanwhile, its expertise in crop protection and seed enhancement could make it a winner as pressure to improve food production grows. Its robust position in the beauty and personal care markets should also pay off handsomely in the years ahead.
All this means I’ll be looking to open a position in the company when I have cash to invest.
