Croda International Plc (LSE:CRDA) shares haven’t had the best run of late. The specialty chemicals business has seen its stock price drop by around 20% over the last 12 months as market conditions deteriorate.

But while its recent performance has left many investors wanting, the last half-decade still looks strong, with the market capitalisation growing by a solid 72% versus the FTSE 100‘s 5% decline.

In other words, Croda International shares have been a market-beating investment over the last five years. But can this performance be replicated moving forward? And does the recent double-digit share price cut present an attractive buying opportunity for my portfolio?

What does Croda International do?

Founded in a small English town nearly a century ago, Croda International has evolved into a global publically-traded enterprise listed on the London Stock Exchange.

The firm designs, manufactures, and sells specialty chemicals used in various industries. Its primary product lines include adhesive, speciality ingredients for self-tanning, beauty care, paints, and coatings.

It also offers bio-biased phase change materials for buildings, ventilation systems, clothing, healthcare products, electronics, and even food-energy storage.

Each of its product lines are distributed through four divisions:

• Consumer Care
• Life Sciences
• Performance Technology (Disposed of June 2022)
• Industrial Chemicals (Disposed of June 2022)

Today, Croda employs over 6,100 people across 37 countries.

2022 financial performance

At the end of July this year, the company released its half-year results. And, in my opinion, they were pretty encouraging despite what the movement in Croda shares would suggest.

Top-line revenue increased by an impressive 21% to £1.1bn on the back of an improved product portfolio mix and higher prices. Plus, thanks to the expansion of profit margins, adjusted operating income grew even faster by 25.2%, reaching £300.4m during the first six months of the year.

What’s more, the firm’s recent divestment of its PTIC businesses in late 2021 has flooded the balance sheet with £665m of cash. Subsequently, the net debt position has shifted to a far more favourable level of £331.3m, down from £866.3m a year ago.

As impressive as these figures are, they sadly didn’t translate into more substantial cash flow. Cash generated by operations actually fell year-on-year by 22.5%, primarily due to an adverse movement in the value of Croda’s inventories and receivables.

Pairing this with increased investments in working capital has slashed the free cash flow in half from £42.7m to £21m.

Regardless, its ability to expand profit margins in the face of inflationary pressure is quite impressive, in my opinion. And the renewed strength of the balance sheet makes me believe the business is in a strong position as it enters the second half of its fiscal year.

What is the future of Croda shares?

The disposal of its PTIC businesses generated a profit of £361m and enabled the group to focus more on the Consumer Care and Life Science sectors. Management intends to use the proceeds to accelerate growth in these areas and create long-term shareholder value.

However, this move has created a new cloud of uncertainty regarding near-term future performance. And it could explain why Croda International stock has been hit hard lately.

With more dependence on the consumer space and consumer spending activity cooling off thanks to the cost-of-living crisis, it isn’t easy to know what to expect in the near term.

Having said that, the long-term picture still looks intact in my eyes. After all, the renewed strength of its balance sheet does put it in a strong position to withstand a potentially weaker sales period.

The current Croda International share price places its market cap at £9.2bn, with a 52-week range extending from a low of 5,862p to a high of 10,505p.

On a PE ratio basis, the stock trades around 13 times earnings which doesn’t seem all that expensive, in my opinion, especially if it can continue to deliver solid performance in the long run.

Is Croda International a good share to buy?

Looking at Croda shares, the underlying business seems to have quite a few traits I like to look for when determining if a stock is a good investment.

Firstly, it retains the support of institutional investors who own more than 50% of the shares outstanding. Insider ownership is pretty weak, but given the company’s size, that’s not exactly surprising.

But one of the biggest selling points, I feel, is its Dividend Aristocrat status. For the last three decades, the company has consistently increased its dividends every year, even during the height of the pandemic. And this status remains intact in 2022, with another 8% increase issued in the interim payout raising the interim dividend to 47p per share.

That’s a pretty rare achievement, with only a few UK shares residing in this elite club. And it’s why, even with the risk of a looming sales slowdown, I think Croda shares are a good investment for my income portfolio today.

Prosper Ambaka does not own shares in any of the companies mentioned. The Money Cog has no position in any of the companies mentioned. Views expressed on the companies and assets mentioned in this article are those of the writer and therefore may differ from the opinions of analysts in The Money Cog Premium services.