Investing in Whitehaven Coal (ASX:WHC) three years ago would have delivered you a 651% gain

For us, stock picking is in large part the hunt for the truly magnificent stocks. You won't get it right every time, but when you do, the returns can be truly splendid. One such superstar is Whitehaven Coal Limited (ASX:WHC), which saw its share price soar 518% in three years. And in the last month, the share price has gained 14%. We love happy stories like this one. The company should be really proud of that performance!

Let's take a look at the underlying fundamentals over the longer term, and see if they've been consistent with shareholders returns.

Check out our latest analysis for Whitehaven Coal

While markets are a powerful pricing mechanism, share prices reflect investor sentiment, not just underlying business performance. 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).

Whitehaven Coal became profitable within the last three years. Given the importance of this milestone, it's not overly surprising that the share price has increased strongly.

You can see below how EPS has changed over time (discover the exact values by clicking on the image).

It's good to see that there was some significant insider buying in the last three months. That's a positive. On the other hand, we think the revenue and earnings trends are much more meaningful measures of the business. Before buying or selling a stock, we always recommend a close examination of historic growth trends, available here..

What About Dividends?

As well as measuring the share price return, investors should also consider the total shareholder return (TSR). 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. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. We note that for Whitehaven Coal the TSR over the last 3 years was 651%, which is better than the share price return mentioned above. And there's no prize for guessing that the dividend payments largely explain the divergence!

A Different Perspective

We're pleased to report that Whitehaven Coal shareholders have received a total shareholder return of 14% over one year. And that does include the dividend. Having said that, the five-year TSR of 19% a year, is even better. It's always interesting to track share price performance over the longer term. But to understand Whitehaven Coal better, we need to consider many other factors. Like risks, for instance. Every company has them, and we've spotted 3 warning signs for Whitehaven Coal (of which 1 shouldn't be ignored!) you should know about.

Whitehaven Coal is not the only stock insiders are buying. So take a peek at this free list of growing companies with insider buying.

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

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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.