Is this forgotten FTSE share about to make investors rich all over again?

Not long ago, this FTSE share was all the rage before demand dropped off and things went south. Is it ready for a spectacular comeback?

| More on:
Syringe and vial on blue background

Image source: Getty Images

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

As times change and new trends emerge, certain FTSE shares fall in and out of favour. There are many factors that can contribute to this: economic cycles, new technology, and changing consumer habits.

But I find that history has a way of repeating itself. With the economy in recovery, it might once again be time for this long-forgotten stock to shine.

The right chemistry

Croda International (LSE: CRDA) is a chemicals manufacturer, developing everything from pharmaceutical ingredients to textile treatments. It was one of the few companies that enjoyed increased business during Covid, providing lipids for use in Covid vaccines.

As such, its share price skyrocketed by over 100% during 2020. Not that it was doing badly beforehand — in the 10 years before Covid, the price increased 496%. So it’s fair to say business was good.

And then it all came crashing down. Since hitting a high above £100 in December 2021, the share price is down 60% to the current £40 level.

So what happened?

It seems that the Covid panic-buying didn’t extend to just toilet paper. Companies fearing the worst stocked up on way too many chemicals. Subsequently, Croda experienced a huge drop in sales once lockdowns ended and life returned to normal.

In its 2023 full-year results, the firm revealed sales were down 11%, leading to a 33% fall in adjusted profits before tax. CEO Steve Foots noted that the performance “reflects the prolonged destocking and weaker macro environment that has followed two record years post the pandemic“. But he went on to praise the company’s strong balance sheet and improved cash flow, saying it’s “well positioned to take advantage of the demand recovery when it occurs”.

And I think he’s right. 

When considering price recovery, I like to check a stock’s relative strength index (RSI). When this lagging indicator drops below 30 for extended periods, it can sometimes pre-empt a price reversal. Croda’s daily RSI has been below 30 for most of June – the only time this year it’s been below 30. When it dropped below 30 for a few days last October, the price gained 20% in the following months.

Created on TradingView.com

But it’s no guarantee. In January 2022 it was below 30 for most of the month and the price continued to fall through February and March. The £40 price level is significant, though. In April 2020, the share price recovered after touching this level and again in October of 2023. There’s no guarantee it will happen again but if a recovery is on the cards, I think it has a better chance of starting here.

There are other positive signs, too.

Based on future cash flow estimates, there’s a good consensus among analysts that the stock is trading at 75% below its fair price. As such, they expect on average a 22% increase from current levels.

That relies on demand increasing. Stockpiles may be decreasing but barring another pandemic, it’s unlikely demand will return to 2021 highs. The current downward momentum may drag out, providing several good opportunities to buy the shares at a cheap price — possibly even lower than now.

But a lot lower? I doubt it. So rather than miss my chance, I plan to buy the shares once July payday rolls around.

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 assessed. Consider taking independent financial advice.

Mark Hartley has no position in any of the shares mentioned. The Motley Fool UK has recommended Croda International Plc. 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.

More on Investing Articles

Investing Articles

This UK share has hiked dividends for 32 years – now its price has crashed 30%

Harvey Jones is tempted by a FTSE 100 stock with a stellar track record of dividend hikes. But he wonders…

Read more »

Concept of two young professional men looking at a screen in a technological data centre
Investing Articles

Should I rush to buy CrowdStrike shares after a 23% fall?

Edward Sheldon has been looking for cybersecurity shares to buy for his portfolio. Should he pile into CrowdStrike after its…

Read more »

Middle-aged white man pulling an aggrieved face while looking at a screen
Investing Articles

After crashing 50% and 41%, are these FTSE growth stocks now unmissable bargains?

Paul Summers looks at two FTSE growth stocks currently hated by the market. Might this be a wonderful contrarian opportunity?

Read more »

Arrow symbol glowing amid black arrow symbols on black background.
Investing Articles

Is this 7%-yielding FTSE 100 dividend star still a bargain after a 34% price rise?

Despite its recent price rise, this FTSE 100 high-yield heavyweight still looks very undervalued to me, supported by strong earnings…

Read more »

Portrait of elderly man wearing white denim shirt and glasses looking up with hand on chin. Thoughtful senior entrepreneur, studio shot against grey background.
Investing Articles

Should I invest today or wait for a stock market crash?

Does it make sense to keep buying shares or save cash for a stock market crash? Our writer thinks there's…

Read more »

Investing Articles

Is this the beginning of the end for the rising Nvidia share price?

Jon Smith explains why the Nvidia share price dropped sharply last week and talks through the key events coming up…

Read more »

A pastel colored growing graph with rising rocket.
Investing Articles

£11,000 of Legal & General shares could make me £14,583 a year in passive income!

A high passive income can be generated from a much smaller investment in Legal & General shares if the dividends…

Read more »

British union jack flag and Parliament house at city of Westminster in the background
Investing Articles

2 of the widest moats in the FTSE 100

A durable competitive advantage is key to a good investment. And Stephen Wright thinks a couple of FTSE 100 firms…

Read more »