The Syrah Resources Ltd (ASX: SYR) share price rocketed 8% higher on the ASX yesterday and is up 16.7% in two days – so why is the Aussie graphite miner's share price so volatile?
Syrah is the most shorted stock on the ASX
Despite boasting the world's largest graphite mine with its Balama operations in Mozambique, Syrah has been among the most shorted stocks on the ASX for a long, long time.
While investors have had some relief in the last couple of days, the Syrah share price is still down 23% since the start of the year and its current $1.19 valuation is a far cry from its 52-week high of $3.60 per share seen in March 2018.
The company has had ~17% of its total shares sold short since 2017 and this has consistently placed pressure on the share price and forced it a long way south of its previous highs.
However, Syrah's short-term share price resistance this year may be creating a short squeeze and forcing some investors to close out their positions, with that coverage meaning buying the stock and driving up the price.
While betting against short sellers is always a dangerous game, particularly for one the market is betting so heavily against, if Syrah can start turning around some profit and the graphite prices start to climb then the Syrah share price could explode.
Is Syrah in the buy basket?
The short answer, in my view, is not yet.
I'd want to see a turnaround in global graphite prices and a maturing of operations at its Balama mine before buying the stock.
The stock does look cheap at $1.19 per share but with so much downward pressure you'd really want to see some tangible results before taking on a big investment in the Aussie miner.
The Federal Election should provide some interesting activity in the markets for the likes of Syrah, particularly given the Australian Labor Party's pledge to provide tax cuts to businesses that invest in electric cars for their workers.
With higher demand and potential government support, Syrah could be worth a look in the next 12-18 months from a valuation perspective.
For those Fools looking for the next hot growth prospect, I'd suggest checking out this buy-rated stock that could be set to take a new-age $22 billion industry by storm.
