U.S. markets closed
  • S&P Futures

    3,301.25
    +2.00 (+0.06%)
     
  • Dow Futures

    27,237.00
    +94.00 (+0.35%)
     
  • Nasdaq Futures

    11,111.25
    -38.25 (-0.34%)
     
  • Russell 2000 Futures

    1,490.40
    +1.60 (+0.11%)
     
  • Crude Oil

    39.55
    -0.05 (-0.13%)
     
  • Gold

    1,908.00
    +0.40 (+0.02%)
     
  • Silver

    24.55
    +0.03 (+0.11%)
     
  • EUR/USD

    1.1708
    -0.0001 (-0.01%)
     
  • 10-Yr Bond

    0.6640
    -0.0070 (-1.04%)
     
  • Vix

    26.86
    -0.92 (-3.31%)
     
  • GBP/USD

    1.2746
    +0.0010 (+0.08%)
     
  • USD/JPY

    105.0400
    +0.1160 (+0.11%)
     
  • BTC-USD

    10,536.62
    -5.13 (-0.05%)
     
  • CMC Crypto 200

    214.89
    +1.13 (+0.53%)
     
  • FTSE 100

    5,829.46
    +25.17 (+0.43%)
     
  • Nikkei 225

    23,360.30
    0.00 (0.00%)
     

Investors Who Bought Whitehaven Coal (ASX:WHC) Shares Five Years Ago Are Now Up 119%

Simply Wall St

When you buy shares in a company, it's worth keeping in mind the possibility that it could fail, and you could lose your money. But when you pick a company that is really flourishing, you can make more than 100%. One great example is Whitehaven Coal Limited (ASX:WHC) which saw its share price drive 119% higher over five years. The last week saw the share price soften some 3.8%.

See our latest analysis for Whitehaven Coal

To quote Buffett, 'Ships will sail around the world but the Flat Earth Society will flourish. There will continue to be wide discrepancies between price and value in the marketplace...' One way to examine how market sentiment has changed over time is to look at the interaction between a company's share price and its earnings per share (EPS).

During the last half decade, Whitehaven Coal became profitable. Sometimes, the start of profitability is a major inflection point that can signal fast earnings growth to come, which in turn justifies very strong share price gains. Since the company was unprofitable five years ago, but not three years ago, it's worth taking a look at the returns in the last three years, too. We can see that the Whitehaven Coal share price is up 7.2% in the last three years. In the same period, EPS is up 196% per year. This EPS growth is higher than the 2.4% average annual increase in the share price over the same three years. So you might conclude the market is a little more cautious about the stock, these days. This cautious sentiment is reflected in its (fairly low) P/E ratio of 6.10.

The company's earnings per share (over time) is depicted in the image below (click to see the exact numbers).

ASX:WHC Past and Future Earnings, November 4th 2019
ASX:WHC Past and Future Earnings, November 4th 2019

We like that insiders have been buying shares in the last twelve months. Even so, future earnings will be far more important to whether current shareholders make money. This free interactive report on Whitehaven Coal's earnings, revenue and cash flow is a great place to start, if you want to investigate the stock further.

What About Dividends?

It is important to consider the total shareholder return, as well as the share price return, for any given stock. Whereas the share price return only reflects the change in the share price, the TSR includes the value of dividends (assuming they were reinvested) and the benefit of any discounted capital raising or spin-off. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. In the case of Whitehaven Coal, it has a TSR of 186% for the last 5 years. That exceeds its share price return that we previously mentioned. And there's no prize for guessing that the dividend payments largely explain the divergence!

A Different Perspective

While the broader market gained around 19% in the last year, Whitehaven Coal shareholders lost 23% (even including dividends) . Even the share prices of good stocks drop sometimes, but we want to see improvements in the fundamental metrics of a business, before getting too interested. On the bright side, long term shareholders have made money, with a gain of 23% per year over half a decade. It could be that the recent sell-off is an opportunity, so it may be worth checking the fundamental data for signs of a long term growth trend. Investors who like to make money usually check up on insider purchases, such as the price paid, and total amount bought. You can find out about the insider purchases of Whitehaven Coal by clicking this link.

There are plenty of other companies that have insiders buying up shares. You probably do not want to miss this free list of growing companies that insiders are buying.

Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on AU exchanges.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.