Why the Galaxy Resources and Orocobre share prices are falling

The Galaxy Resources Limited (ASX: GXY) share price has found its footing today after being among the market’s worst-performing shares over the past two sessions.

Although the Galaxy share price has recovered 4.5% so far today, taking its share price to $1.62, it remains 15.6% below its closing price on Tuesday. Galaxy’s shares have fallen just under 20% over the course of the week, while they have shed more than half of their value since they peaked at $3.475 earlier this year.

The Orocobre Limited (ASX: ORE) share price has also been on the nose with investors. The Orocobre share price has fallen almost 8% this week and a little over 29% since it hit a 52-week high of $5.05.

Galaxy Resources and Orocobre both operate in the resources sector, with a specific focus on lithium. Indeed, it’s possible that certain companies within the space stand to benefit from the rise of electric vehicles and battery industries, which certainly sparked excitement throughout the market during 2016.

Despite the potential, however, it seems that many of the shares within the sector became overhyped as lithium prices soared. It shouldn’t come as too much of a surprise, then, to see them give some of their gains back. As we said just over 12 months ago:

“Quite often, what happens is investors pile into the shares hoping that the momentum will continue. It can continue for quite some time, but the eventual falls can be very sharp, wiping out enormous gains literally overnight.”

Although it can be tempting to get behind the latest fad on the share market with the hope of catching the wave higher, it can also be an incredibly risky way to build your wealth. The more risk-averse investors may prefer to find businesses that offer more stable returns rather than trying their luck in the lithium space.

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Motley Fool contributor Ryan Newman has no position in any stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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