Whitehaven share price: 'incredibly expensive' or 'ridiculously cheap'?

Thermal coal prices hit all-time highs this year, spurring outsized profits and share price gains for the big ASX coal stocks.

| More on:
Happy coal miner.

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The Whitehaven Coal Ltd (ASX: WHC) share price has been on fire over the past year.

Amid record prices for thermal coal (used to generate electricity), Whitehaven shares have soared an eye-popping 249% in 12 months.

Meaning a $1,000 investment this time last year would be worth some $3,500 today. And that doesn't take dividends into account. Even at the current share price, Whitehaven pays a trailing yield of 5.5%, fully franked.

But with those kinds of gains already in the bag for the Whitehaven share price, is the S&P/ASX 200 Index (ASX: XJO) miner still cheap or is it now expensive?

Whitehaven share price: 'incredibly expensive' or 'ridiculously cheap'?

For some greater insight into that, we defer to ClearLife Capital portfolio manager David Moberley and QVG Capital portfolio manager Josh Clark (courtesy of Livewire).

Clark said that for QVG, Whitehaven is a hold at the current share price, saying the miner "has some pretty extreme opposing scenarios".

According to Clark:

You've got to make note of the fact that the thermal coal price has moved from trading in a band of maybe US$50 to US$100, and it's now many, many multiples of that. So it looks incredibly expensive on long-term forecasts or longer-term historic prices. And then it looks ridiculously cheap on spot thermal coal prices.

Coal prices to eventually normalise

Clark pointed out that thermal coal prices will inevitably come back to earth, saying Europe's energy crisis and the war in Ukraine have sent thermal coal prices higher.

"Inventories are starting to look a bit better," he said. "Those phenomena are not permanent. So the price will move lower at some point."

Clark continued:

So the game you're trying to play is to get paid back on a really cheap multiple before that commodity price starts moving down. I've never seen a commodity stock hang in there and not go down when the commodity price is going down, regardless of what the numbers say. And even though they're quite extreme scenarios, I think they're fairly balanced.

Moberley said that after the run up in the Whitehaven share price, it's a sell for ClearLife.

He said that with incredibly strong coal prices:

The company's absolutely spewing out serious amounts of cash, so they're currently undertaking a buyback of up to 25% of their shares. But I think that's more than captured in the share price at this point. And while the commodity price has been strong, there are some signs of that softening at the moment.

So, is the Whitehaven share price incredibly expensive or ridiculously cheap?

It would appear maybe both, depending on your investment horizon.

Motley Fool contributor Bernd Struben has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

More on Energy Shares

A man has a surprised and relieved expression on his face. as he raises his hands up to his face in response to the high fluctuations in the Galileo share price today
Energy Shares

Why this ASX uranium stock could rocket 100%+

Let's see why this speculative stock is being tipped to double in value by Bell Potter.

Read more »

A young man punches the air in delight as he reacts to great news on his mobile phone.
Energy Shares

Macquarie tips 23% upside for this ASX All Ords mining stock

Let's see why the broker thinks this stock could be a top buy.

Read more »

a group of three electricity workers stand smiling wearing hard hats and high visibility vests in front of an array of high voltage power equipment.
Energy Shares

Macquarie raises price target on Origin Energy shares

The broker just raised it's price target. Here's why.

Read more »

A smiling woman holds a Facebook like sign above her head.
Energy Shares

Bell Potter says this ASX 200 uranium stock is a top buy

Let's find out why the broker is feeling bullish on this stock.

Read more »

Worker on a laptop at an oil and gas pipeline.
Energy Shares

Boss Energy shares have surged 93% since April. Here's what Macquarie expects now

Boss Energy shares remain a favourite for ASX short sellers. Are they in a for a payday or headed for…

Read more »

A young man wearing glasses writes down his stock picks in his living room.
Energy Shares

3 reasons to buy this beaten down ASX 200 coal stock today

A leading expert forecasts a big potential rebound ahead for this quality ASX 200 coal stock.

Read more »

Female miner uses mobile phone at mine site
Energy Shares

Here are the latest growth forecasts for the Pilbara Minerals share price

Can investors charge up their returns with this ASX lithium share?

Read more »

An oil worker in front of a pumpjack using a tablet.
Energy Shares

Top 5 ASX 200 energy shares of FY25 amid a challenging year for sector

The energy sector was the weakest of the 11 market sectors in FY25.

Read more »