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.
