Should I Buy Croda International?

LONDON -- I'm shopping for shares, and there are plenty of goodies for sale. Should I pop Croda International (LSE: CRDA  ) (NASDAQOTH: COIHY  )  into my basket?

My chemicals romance
I thought I knew the FTSE 100 pretty well but speciality chemicals company Croda International has largely evaded me. Maybe that's because it only joined the index in March last year. Or maybe too many other stocks have caught my eye. But it's firmly on my radar now, so should I buy it?

With hindsight, I should have bought Croda five years ago. It is up a whopping 303% since then, compared to just 10% for the FTSE 100 as a whole. It is all very well delivering that kind of growth when you're muscling your way through the FTSE 250, a different matter when you're entrenched in the FTSE 100 with a market cap nearing £3.8 billion. Can it maintain this kind of performance?

Industrial pollution
Croda's recent preliminary results for 2012 shows a healthy 6.6% increase in pre-tax profit to £253 million, despite what management calls "tough market conditions and adverse currency translation". It posted profit growth of around 8% in both its consumer care and performance technologies segments, offsetting an 8% drop in industrial chemicals. A strong fourth quarter showed a positive end to the year. Cuts in both its net debt and pension deficit helped boost the balance sheet. Its success was reflected in an 8.2% dividend increase to 59.5 pence.

The company's know-how features in a comfortingly diverse range of products, from the personal to the industrial, the pharmaceutical to the geological. Better still, its raw materials feature in essential everyday products such as skin creams, deodorants, hair care, and beauty products, which should make it a relatively defensive investment. Chairman Martin Flower admits the company been hit by troubles in Europe, but it is combating this by investing in new technologies and markets, particularly in Asia and Latin America. Where would growth-hungry FTSE 100 companies be without emerging markets? I dread to think.

Price isn't right
I'm slightly concerned by a slowdown in its earnings per share growth, which peaked at a whopping 77% in 2010 but dipped to just 5% in 2012. Forecast earnings per share growth is 8% this year and 10% next, which would be fine, except that Croda now trades at a pricey 21 times earnings. This meaty valuation is the price of success, and the same could be said of its modest 2.2% yield, below the FTSE 100 average of 3.3%. Brokers are underwhelmed. Deutsche Bank has just upped its target price from £23.50 to £24, but that's still below current market price of £27.14. HSBC hiked its target price and £24.50 to £27.50, but couldn't muster more than a neutral rating. Several of my fellow Fool writers are hanging on for a buying opportunity but, sorry, I think the moment has passed for now. There are more tempting stocks out there.

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