6 weeks among the most shorted: Could it be time to buy Pilbara Minerals shares?

Could returns charge ahead by looking at this stock now?

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The ASX lithium share sector has seen plenty of investor attention over the past few months. For Pilbara Minerals Ltd (ASX: PLS) shares, there has been plenty of negative focus with the company being among the most shorted stocks on the ASX.

As reported by colleague James Mickleboro, data from the Australian Securities and Investments Commission (ASIC) suggested that the ASX lithium share had a short interest of 9.6%.

What does this mean?

The basic concept of shorting is that an investor, usually a hedge fund manager, is betting that the share price will go down.

They can 'borrow' shares from an institutional investor, pay a fee, and then they sell those shares.

The investor needs to buy back the shares and return them to the lender at some point – if they buy back at a lower price, they've made a profit, and if they have to buy back shares at a higher price then they've made a loss.

Based on the short interest level of 9.6%, that means almost a tenth of Pilbara Minerals shares have been shorted, which is a large percentage.

Since 10 August 2023, the Pilbara Minerals share price is down 18% and it's down 7.5% since 4 September 2023. So if the shorters have shorted recently, they're seemingly in the money.

Is the Pilbara Minerals share price an opportunity?

A general consensus of analysts seems to be more positive than negative at the moment. According to ratings collated by Factset, there are currently eight buy ratings on the ASX lithium share, seven hold ratings and three sell ratings.

The ASX lithium share's shorter-term success may be heavily influenced by the lithium price.

It's difficult to predict which way the lithium price is going to go week to week and month to month, but Pilbara Minerals is hopeful for the future.

In its FY23 results the company said:

The long-term outlook remains very positive for battery grade raw lithium raw materials with continued adoption of EVs and battery energy storage.

…Fastmarkets report that China's energy storage systems (ESS) took up ~40% of lithium-ion battery production in 2023 to date following a 134% increase in ESS production compared to 2022.

…Periods of pricing volatility are expected in the short-term as the lithium materials supply chain continues to tightly manage inventory levels in light in macroeconomic conditions.

Pilbara Minerals suggested that by 2040, the expected deficit in the lithium market could be the equivalent of at least 12 Pilgangoora projects, depending on potential supply coming online.

I recently shared my opinion on why I think Pilbara Minerals shares are attractive, which includes its plans to grow production and be involved in taking raw lithium and moving it towards being battery-ready lithium.

The Pilbara Minerals share price could go lower in the short term, but the long term looks very promising. The main thing I'd be worried about is a different battery resource taking over globally from lithium, which isn't imminent and may not ever happen.

Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. 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.

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