This FTSE 100 stock is down over 20% in 2022! Should I buy now?

Jabran Khan delves deeper into a FTSE 100 chemical manufacturing business with applications to many day to day items. Should he buy or avoid the shares?

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The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

FTSE 100 incumbent Croda International (LSE:CRDA) has seen its shares fall in 2022 so far. What’s caused this downturn and is now a good time to add the shares to my holdings?

Speciality chemicals

Croda creates and sells specialist chemicals that many industries and businesses use in everyday products used by consumers. Some of Crodas chemicals are included in foods, cosmetic creams and lotions, and plastic products as well as dietary supplements.

So what’s been happening with the Croda share price? Well, as I write, the shares are trading for 7,606p. At this time last year, the shares were trading for 6,582p, which is a 10% increase over a 12-month period. In 2022 to date, however, the shares are down over 20%, from 10,120p to current levels.

I believe Croda has suffered, like many other FTSE 100 stocks, due to soaring inflation, rising costs of raw materials, and the events in Ukraine which pulled the stock markets back. The stock market correction saw Croda shares hit 6,736p on 8 March. Croda shares have rallied 12% to current levels since that day.

For and against buying Croda shares

FOR: Croda released full-year results for the period ending 31 December 2021 at the end of last month. The results exceeded analyst forecasts. Sales increased by 35% compared to 2020. This led to a surge in profit of over 40% compared to last year. Croda also has a positive track record of trading too. I can see revenue and gross profit have increased year on year for the past three years. I do understand that past performance is not a guarantee of the future, however.

AGAINST: At current levels, Croda shares look a bit pricey to me. The FTSE 100 price-to-earnings (P/E) ratio average is 15. Croda shares are currently on a P/E ratio of just over 32. The shares are already down in 2022 overall but they are still priced at a premium. Could I get more bang for my buck elsewhere in other stocks? After all, quality or not, I don’t want to overpay.

FOR: Croda shares pay a dividend that would boost my passive income stream through dividend payments. In the most recent set of results, Croda confirmed a dividend of 9.9p per share for 2021. The current dividend yield is just below 2%, which is lower than the FTSE 100 average of 3%-4%, however.

AGAINST: Current macroeconomic headwinds could impact future results and investment viability for Croda, in my opinion. The most recent set of results have not been affected as many of these issues have only intensified since the turn of the year. These issues include soaring inflation, rising cost of raw materials and the supply chain crisis. All these issues can take a bite out of profit margins and affect shareholder returns and sentiment.

A FTSE 100 on my watch list for now

I like Croda as a business and believe there is some long-term potential for some lucrative returns. I have two main issues right now, however. Firstly, macroeconomic headwinds are putting me off. Secondly, the shares look a bit expensive for my liking.

On this basis, I’m keeping Croda on my watch list. If the shares fall further and results continue upwards, I will revisit my position.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be considered so you should consider taking independent financial advice.

Jabran Khan has no position in any of the shares mentioned. The Motley Fool UK has recommended Croda International. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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