The Lake Resources NL (ASX: LKE) share price closed Friday's session down 3.8% to 63.5 cents.
This caps off a hideous month for the ASX lithium share, which has slid 22% over this short period.
Why is the Lake Resources share price falling so much?
So, let's get a bit of context here. Lake Resources is not the only ASX lithium share that has been falling over the past month.
Take a look:
- Sayona Mining Ltd (ASX: SYA) shares are down 13%
- Core Lithium Ltd (ASX: CXO) shares are down 7%
- Allkem Ltd (ASX: AKE) shares are down 2.9%
- Liontown Resources Ltd (ASX: LTR) shares are down 10%
- IGO Ltd (ASX: IGO) shares are down 5%.
But you see the problem, right?
It's the scale of the Lake Resources share price fall at 22% that stands out.
Most of these ASX lithium shares are down, at least partly, due to some bearish outlooks for lithium prices. But that's a common factor affecting all lithium stocks. Why is Lake Resources down so much more?
Short seller attack
A few lithium stocks are being targeted by short sellers right now, and Lake Resources is one of them.
Short-selling is a trading strategy where investors try to profit from a fall in the share price. They borrow, then sell the shares, with the intention of buying them back later when they fall in value to make a profit.
As my colleague James reported this week, Lake Resources remains among the ASX's 10 most shorted stocks with 7.6% of its capital currently shorted. But there are a few lithium stocks on that list.
Core Lithium actually has a higher short interest than Lake Resources with 9.6% of its shares shorted. But as James points out, the reason for that shorting is valuation concerns. A bunch of investors think the Core Lithium share price is too high right now, so they're betting on a correction.
The unique element of the short activity on Lake Resources is that it's being directly attacked by a United States short-selling activist group called J Capital.
In July last year, J Capital released a report questioning operational matters relating to Lake Resource's technology and project funding.
Lake Resources responded at the time saying the report "puts forth incorrect information on technical matters and inaccurate assertions … ".
J Capital has issued further reports since then, with the latest report released in December.
In short, J Capital doesn't believe Lake Resources can achieve what it says it can, and they're proactively hassling them on the details.
Should you buy Lake Resources?
This sort of thing is pretty confusing for ordinary investors. Many people don't even understand what short selling is because it's not a trading strategy that is typically available to retail investors. It's the domain of institutional and sophisticated investors, like hedge fund managers.
To state the obvious, buying an ASX share that is the subject of a short attack is pretty gutsy. You need to really understand the ins and outs of the Lake Resources business and what J Capital is saying about it.
In order to decide whether to buy Lake Resources shares or not, prospective investors would have to do an enormous amount of research to satisfy themselves that what J Capital is saying isn't right.
And that research is on top of the usual fundamental analysis that every investor should do on every ASX share they are considering investing in.
So, we're talking about a serious time commitment here, and this might be one reason why the Lake Resources share price isn't trading so well at the moment.
