So why the sudden fall? The short answer is it has announced this year’s profits are going to come in lower than expected, although there’s a bit more to it than that.
The ups and downs of the stock market
Over the last five years, share price has gone from £50.44 to £52.64. That’s an average gain of 1% per year, but the journey has been anything but smooth for investors.
Between 2017 and 2022, the stock soared to £104.10, posting average annual gains of almost 20% per year. That made it one of the best-performing FTSE 100 shares during the pandemic.
Since then, though, it’s all been downhill. Croda shares have given back almost all of their previous gains – so what has caused such a dramatic reversal of fortunes?
A lot of the share price movement has to do with the pandemic. Croda is a chemicals company that makes products used in various things from agriculture to pharmaceuticals.
During the pandemic, the company experienced a big surge in demand. Operating profits went from £236m in 2017 to £445m in 2022 and the share price responded accordingly.
Since then, though, demand has fallen away. As a result, the company announced this morning that this year’s profits are likely to come in somewhere between £370m and £400m.
That’s below what analysts were expecting, which was something in the region of £450m and a fall from last year’s numbers. That’s why the stock is selling off today.
Buy the dip?
I’ve been watching the Croda International share price for some time and looking for a buying opportunity. Is this it, or is the sell-off justified?
I’m inclined to think there’s a dip worth buying here. Let’s suppose the company brings in £370m in profits this year – in line with the lower end of its estimates.
After today’s drop, Croda has a market cap of around £7.3bn. That puts the stock at a price-to-earnings (P/E) ratio of around 20.
That’s not obviously cheap, but this is a bad year for Croda. Its customers are winding down excess inventory, creating a headwind for sales.
In a better year, I think profits could come in significantly higher. And this would make today’s share price look like a bargain.
A stock to buy
I’ve been looking at buying shares in Croda International for some time. The stock has been falling since the start of the year and today’s decline has really caught my attention.
As far as I can tell, this is largely due to inventory levels coming down in anticipation of a recession. Oil and copper have been experiencing similar drawdowns.
But I think this is a short-term headwind for a company with a bright long-term outlook. I’m looking to buy the stock in the near future.