LONDON -- I'm always searching for shares that can help ordinary investors like you make money from the stock market.
So right now I am trawling through the FTSE 100 and giving my verdict on every member of the blue-chip index. Simply put, I'm hoping to pinpoint the very best buying opportunities in today's uncertain market.
Today I am looking at Croda International (CRDA -1.71%) to determine whether you should consider buying the shares at 2,710 pence.
I am assessing each company on several ratios:
- Price/Earnings (P/E): Does the share look like a good value when compared against its competitors?
- Price Earnings Growth (PEG): Does the share look like a good value factoring in predicted growth?
- Yield: Does the share provide a solid income for investors?
- Dividend Cover: Is the dividend sustainable?
So let's look at the numbers:
|
Stock |
Price |
3-Year EPS Growth |
Projected P/E |
PEG |
Yield |
3-Year Dividend Growth |
Dividend Cover |
|---|---|---|---|---|---|---|---|
|
Croda |
2,710p |
36% |
19.8 |
2.5 |
2.2% |
70% |
2.1 |
The consensus analyst estimate for next year's earnings per share is 137 pence (8% growth) and dividend per share is 64 pence (8% growth).
Trading on a projected P/E of 19.8, Croda appears slightly cheaper than its peers in the chemicals sector, which are currently trading on an average P/E of around 21.
However, Croda's P/E and high single-digit growth rate give a PEG ratio of around 2.5, which implies the share price is expensive for the near-term earnings growth the firm is expected to produce.
At 2.2%, Croda's dividend income is about the same as the chemicals sector average. However, Croda has a three-year compounded dividend growth rate of 70%, implying the yield could soon overtake that of Croda's peers.
Indeed, the dividend is just over twice covered by earnings, giving Croda plenty room for further payout growth.
So, is now the time to buy Croda?
Croda is one of the world's largest producers of specialist chemicals for products such as cosmetics, herbicides and cleaning fluids.
Croda operates three main divisions, the largest of which accounts for 40% of the company's revenue and produces chemicals used in cosmetics. Indeed, I feel this exposure to the cosmetics industry gives Croda a very defensive nature, as global demand for cosmetics has actually increased over the past few years despite the economic environment.
In particular, demand has increased for anti-aging products, which use chemicals that enjoy above-average margins within the cosmetics industry, and it appears this demand has been the driving force behind Croda's recent growth.
In fact, rising demand for cosmetic products has helped push Croda's earnings an astounding 171% higher during the past five years.
Alongside this good performance, Croda's management remains proactive and, during 2012, Croda acquired two additional businesses in order to complement organic growth.
Furthermore, Croda's growth over the past five years has really impressed investors, so much so that, since the middle of January, Croda's share price has gained around 20% -- almost 16% more than the FTSE 100 as a whole.
That said, the rapid share-price rise over such a short period leads me to believe the company currently looks overvalued. So overall, I feel now does not look to be a good time to buy Croda International at 2,710 pence.
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In the meantime, please stay tuned for my next verdict on a FTSE 100 share.
