Even the investment case for strong companies needs sense checking

This week we look at a chemicals business and an engineering manufacturer. These businesses have drivers and face market issues that are very different, but highlight that even those that enjoy strong market positions can struggle to row against the tide, shoot themselves in the foot or fight to shake off historical baggage.

Croda International (CRDA) is a strong and ambitious chemicals company (lab coats rather than refineries) that is well-positioned to harness the long-term growth potential of complex drug delivery systems, expansion of the high-end personal care market (especially in Asia), and the pressing global need to grow food crop yields. The outlook for Croda has, however, been muddied by a substantial spike in profits due to the pandemic and a faux pas when pushing through product price increases. The macro tailwinds are positive longer term, but the stock still perhaps has more to shake off from the problems of the group’s own making. A perpetually high PE (share price to earnings per share ratio) stock, this one could have  further to fall, but will then be worth considering.