Pilbara Minerals Ltd (ASX: PLS) shares have taken a nosedive in 2024 and are down 30% this year to date.
Chief to the downsides has been the price of lithium, which itself recently hit multi-year lows, before retracing higher to CNY 79,050 per tonne at the time of writing.
Pilbara shares have also been some of the most heavily shorted on the ASX this year. Those betting on the stock price to fall have profited handsomely as a result.
But now the tide may be turning on those with short bets on the lithium miner. Reports suggest that investors may be starting to unwind this trade, potentially in search of new ideas. Let's take a closer look.
Pilbara Minerals shares heavily shorted
A quick glance at the list of most shorted stocks throughout 2024 will see Pilbara Minerals shares in the top 10 for most of the year.
As a reminder, investors use short selling to profit when share prices are declining, unlike 'going long', which means profiting from rising share prices.
As of Monday this week, it was the most heavily shorted, with nearly 18% of shares outstanding considered to be sold short.
With lithium prices potentially finding a bottom and Pilbara down sharply this year, reports suggest the bet against the miner could be reversing.
Hedge funds, which can go both long and short stocks, have started to take profits off the table, according to The Australian Financial Review.
How do we know? Well, whilst about 18% of the company's shares were shorted last week, this is down from 22% back in August.
Could these funds be seeking out their next opportunities? It's not entirely clear, but if the trend continues, this may or may not be good news for Pilbara Minerals shares. Time will tell.
Pilbara above $3 per share?
Brokers are fairly split on the outlook for Pilbara shares. UBS is in the bearish crowd, rating the stock a sell with a $2.35 price target.
Meanwhile, Bell Potter is a hold, valuing the business at $2.95 per share.
Both brokers cite the fundamentals of the underlying lithium market as causes for concern in their investment theses.
But if lithium prices begin to curl higher, is this good news for Pilbara Minerals shares?
Morgans thinks so. It rates the stock a buy with a $3.25 price target, noting an uptick in lithium demand could be positive for Pilbara.
Time will tell if the lithium miner can nudge back to these levels.
Foolish takeout
Pilbara Minerals shares have been heavily shorted this year, but the tides might be starting to turn.
What impact this will have on the long-term outlook of the stock isn't clear.
What will have more of a bearing is the actual performance of the business relative to the lithium market.
