Should ASX investors buy the dip in Whitehaven stock?

Copal miner standing in front of coal.

Whitehaven Coal Ltd (ASX: WHC) stock finished trading for $7.71 per share on Thursday, up 1.72%.

As you can see below, this ASX coal share has taken a tumble from its all-time high seen in late 2022.

Back then, Whitehaven shares were trading close to $11 per share.

The catalyst?

Sky-high coal prices with the black gold reaping about US$430 per tonne.

Commodity prices have since come back down to earth, with the price today at US$137 per tonne.

That’s still strong in historical terms, as the following chart shows.

Should ASX investors buy the dip in Whitehaven stock?

Source: Trading Economics

Part of the reason for reasonably strong coal prices is demand from China and India.

According to Trading Economics analysis:

China and India’s reluctance to lower their coal dependency has maintained coal prices well above their averages from before 2021, despite earlier calls that the gradual phase-out of carbon emissions would lower coal demand.

What’s the latest news on this ASX coal share?

The latest price-sensitive news out of Whitehaven was last week’s announcement that the company has completed its acquisition of two coal mines.

Whitehaven bought the Daunia and Blackwater metallurgical coal mines from BHP Group Ltd (ASX: BHP) and Mitsubishi Alliance (BMA) for an aggregate cash consideration of US$3.2 billion.

Managing director and CEO Paul Flynn described the acquisition as a “significant milestone for Whitehaven that transforms us into a leading metallurgical coal producer”.

But looking ahead, commodity prices are likely to fall.

According to the official new 5-year forecasts for commodity prices, the average metallurgical coal price for FY24 will be higher than FY23.

But the thermal coal price average in FY24 will be more than half of FY23.

By FY29, both commodity prices will be lower.

Meantime, Whitehaven stock has been trading between $6 and $8 per share for about 14 months.

Is it time to buy the dip?

Is Whitehaven stock a buy?

Michael Gable of Fairmont Equities says Whitehaven stock “looks cheap” today.

Gable explains:

The share price looks cheap when taking into account the recently acquired metallurgical coal assets from BHP.

We expect global growth to assist a recovery in coal prices.

UBS is also positive and has upgraded Whitehaven stock following the completion of the BHP deal.

The broker now has a buy rating on Whitehaven with an improved 12-month share price target of $8.70.

This is largely based on the positive outlook for metallurgical coal, the broker says.

Goldman Sachs is neutral on Whitehaven stock with a 12-month share price target of $5.80.

However, this rating and price target were based on models excluding the Daunia and Blackwater mines.

Goldman describes the upside risk for Whitehaven stock as, “Sustained high thermal coal prices and capital returns, possible asset sell downs and JVs, value accretive M&A”.

The downside risk is, “Operating issues, delays to project execution (Vickery, Narrabri extension & Winchester South), lower thermal coal prices”.

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Motley Fool contributor Bronwyn Allen has positions in BHP Group. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Goldman Sachs Group. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.