Here's Why We Think Whitehaven Coal (ASX:WHC) Is Well Worth Watching

The excitement of investing in a company that can reverse its fortunes is a big draw for some speculators, so even companies that have no revenue, no profit, and a record of falling short, can manage to find investors. But the reality is that when a company loses money each year, for long enough, its investors will usually take their share of those losses. A loss-making company is yet to prove itself with profit, and eventually the inflow of external capital may dry up.

In contrast to all that, many investors prefer to focus on companies like Whitehaven Coal (ASX:WHC), which has not only revenues, but also profits. Even if this company is fairly valued by the market, investors would agree that generating consistent profits will continue to provide Whitehaven Coal with the means to add long-term value to shareholders.

See our latest analysis for Whitehaven Coal

Whitehaven Coal's Improving Profits

Whitehaven Coal has undergone a massive growth in earnings per share over the last three years. So much so that this three year growth rate wouldn't be a fair assessment of the company's future. Thus, it makes sense to focus on more recent growth rates, instead. Whitehaven Coal's EPS shot up from AU$1.98 to AU$3.19; a result that's bound to keep shareholders happy. That's a impressive gain of 61%.

Top-line growth is a great indicator that growth is sustainable, and combined with a high earnings before interest and taxation (EBIT) margin, it's a great way for a company to maintain a competitive advantage in the market. The music to the ears of Whitehaven Coal shareholders is that EBIT margins have grown from 57% to 61% in the last 12 months and revenues are on an upwards trend as well. Ticking those two boxes is a good sign of growth, in our book.

You can take a look at the company's revenue and earnings growth trend, in the chart below. For finer detail, click on the image.

While we live in the present moment, there's little doubt that the future matters most in the investment decision process. So why not check this interactive chart depicting future EPS estimates, for Whitehaven Coal?

Are Whitehaven Coal Insiders Aligned With All Shareholders?

It's said that there's no smoke without fire. For investors, insider buying is often the smoke that indicates which stocks could set the market alight. Because often, the purchase of stock is a sign that the buyer views it as undervalued. However, small purchases are not always indicative of conviction, and insiders don't always get it right.

Despite AU$212k worth of sales, Whitehaven Coal insiders have overwhelmingly been buying the stock, spending AU$1.4m on purchases in the last twelve months. This overall confidence in the company at current the valuation signals their optimism. It is also worth noting that it was Non-Executive Director George Raymond Zage who made the biggest single purchase, worth AU$1.0m, paying AU$7.59 per share.

The good news, alongside the insider buying, for Whitehaven Coal bulls is that insiders (collectively) have a meaningful investment in the stock. With a whopping AU$129m worth of shares as a group, insiders have plenty riding on the company's success. This would indicate that the goals of shareholders and management are one and the same.

Should You Add Whitehaven Coal To Your Watchlist?

If you believe that share price follows earnings per share you should definitely be delving further into Whitehaven Coal's strong EPS growth. On top of that, insiders own a significant stake in the company and have been buying more shares. These things considered, this is one stock worth watching. Before you take the next step you should know about the 2 warning signs for Whitehaven Coal (1 makes us a bit uncomfortable!) that we have uncovered.

There are plenty of other companies that have insiders buying up shares. So if you like the sound of Whitehaven Coal, you'll probably love this free list of growing companies that insiders are buying.

Please note the insider transactions discussed in this article refer to reportable transactions in the relevant jurisdiction.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.