The FTSE 100 is up 20% in 2025, but not all stocks have shared in the rally. One in particular has had a miserable year, adding to a 71% drop from its late-2021 peak. As a long-term value investor though, I’m increasingly intrigued by the potential opportunity this presents.
Improving fundamentals
The stock in question is speciality chemicals producer Croda (LSE: CRDA). Once a pandemic star thanks to high-margin lipids for vaccines, the share price has now reset. But for investors willing to look past headlines, the fundamentals are starting to catch up.
In its latest trading update last month, it reported sales of £425m, up 4.4%, with growth across all divisions, including Beauty, Fragrance & Flavours, and Crop Protection.
Operational and supply chain improvements have been a key focus. Across its 11 shared manufacturing sites, it’s been optimising production, warehousing and logistics, including targeted ingredient sales in beauty and crop markets.
Cost-saving efforts are progressing faster than planned. The company initially targeted £25m in savings for 2025 and £15m in 2026, but the programme has been expanded. By the end of 2027, it now expects to achieve £100m of annual savings, meaning this is the amount it plans to save each year once the programme is fully implemented. That is equivalent to roughly 8% of its 2024 cost base.
Future growth drivers
One of the company’s biggest opportunities is ceramides – a breakthrough ingredient that helps skin and hair hydration, smoothness, and health.
Ceramides are now a must-have in premium beauty products, and the company’s acquisition of Solus has given it the technology and expertise to supply these high-demand ingredients globally. Although sales are still tiny at present, back in H1 they leapt by 50%
Beyond ceramides, it’s also developing Luceane, a marine-derived ingredient that targets visible signs of ageing. This represents another example of how the company is staying at the forefront of high-margin, premium ingredients.
Risks
The chemical manufacturer’s turnaround isn’t guaranteed. Execution risk remains, particularly around getting full value from acquisitions like Solus and delivering on cost-saving initiatives. If growth in ceramides or other key products falls short, margins and cash flow could be hit.
The business also faces currency risk: as a global supplier, swings in exchange rates can reduce reported profits. Geopolitical tensions, trade restrictions, or instability in key markets could also disrupt sales and supply chains.
Finally, the dividend yield of 4.4% could be at risk. In H1 2025, the company paid out 66% of earnings, resulting in a £61m net cash outflow. If profits don’t accelerate, payouts may need to be adjusted to preserve cash.
Bottom Line
Croda is far from a household name, but its latest trading update highlights that the business is moving in the right direction.
Beyond immediate sales improvements, the long-term growth drivers remain compelling.
The rising role of biotechnology in pharmaceuticals and consumer care is particularly exciting – from plant cell structures and fermentation to marine biotech. Equally intriguing is the personalisation trend, with drugs tailored to patients’ genetics and consumer care products formulated for individual needs.
The stock’s huge decline was clearly warranted after Covid, but the story now looks very different. Therefore, I think Croda’s shares are worth investigating further.
