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.

Bernd Struben

Author bio Bernd Struben earned his BA in economics from the University of Michigan in 1991, with post-graduate studies in environmental economics at the University of Connecticut. Over the years he’s written about and analysed the tourism industry in the Caribbean; Europe’s commercial real estate markets; and, since moving to Australia in 2010, global and Aussie share markets. Bernd studies geopolitical and macroeconomic trends, alongside sector and company specific data, to gauge what he believes could be tomorrow's best investments. In his free time, you might find Bernd at the beach with his family or working on his next science fiction novel. Areas of expertise Australian and global share markets Macroeconomic and geopolitical trends Real estate Education Economics, University of Michigan Favorite investment quote "The four most dangerous words in investing are: 'This time it's different." — Sir John Templeton

Published November 18, 2022 12:33 pm AEDT

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?

Happy coal miner. — Image source: Getty Images

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.