Chasing the UK stock market’s biggest recent winners can be a tempting strategy, but momentum-driven investing carries risks that cautious investors should not overlook.
When share prices rise sharply, investor expectations often climb faster than the underlying business can justify, leaving little room for disappointment if growth slows even slightly.
Rather than following the crowd into high-flying stocks, some investors are turning their attention to less fashionable names that may offer stronger risk-to-reward potential at current valuations.
Croda International (LSE: CRDA), the specialist chemicals group, is one company that has endured a difficult trading period but may now be attracting value-focused attention as a result.
The business manufactures speciality ingredients used across consumer care, life sciences and industrial markets, with products that play important roles in personal care, healthcare and manufacturing supply chains.
Trading has been genuinely tough in recent periods, with earnings per share falling 60.9% to 44.4p and operating profit dropping 51.6% to £110.1m for the year ended 31 December 2025.
However, more recent figures suggest conditions are beginning to stabilise, with sales rising 4.6% organically to £880.5m for the six months ended 30 June 2026.
Adjusted operating profit also increased 6.1% to £155.8m over the same period, while adjusted earnings per share climbed to 78.6p from 72.2p, indicating some operational momentum is returning.
The company’s trailing return on equity stands at just 3.65% and its net margin sits at 4.61%, neither of which are figures that immediately inspire confidence from a profitability standpoint.
Net debt of £577.9m at 30 June 2026 represents 1.4 times adjusted EBITDA, a level that does not suggest the balance sheet is under significant strain despite the wider earnings weakness.
Croda declared a total 2025 dividend of 111p per share and maintained its 2026 interim payment at 48p, providing a yield of roughly 3.4% at recent prices, though dividends are never guaranteed.
The income component adds appeal for patient investors, particularly those seeking some return while waiting for operational recovery to feed through more visibly into profitability metrics.
Risks remain meaningful, however, with inventory reductions already creating headwinds and chemicals demand remaining sensitive to industrial activity, customer spending patterns and input cost fluctuations.
There is also the possibility that the current low profitability reflects deeper structural challenges rather than simply a temporary cyclical downturn, which is the key factor investors must weigh carefully.
For value-focused investors willing to accept uncertainty and allow time for a recovery to materialise, Croda’s improving first-half numbers, specialist market position and income track record combine to make it a name worth considering seriously.