The Sayona Mining Ltd (ASX: SYA) share price has roared 26% in 2023 to trade at 24 cents right now.
Interestingly, however, the S&P/ASX 200 Index (ASX: XJO) lithium share isn't short of shorters. In fact, it's currently the fifth most shorted company on the ASX. More than 9% of its stocks are effectively being used to bet against it.
Is that a sign that market watchers should steer clear of Sayona shares? Let's take a look.
Sayona shares among the market's most shorted
Before we consider whether the notable short interest in Sayona shares could be a red flag for investors, let's recap what it means.
Short selling is a way in which one aims to profit from a falling share price. A short seller will borrow a company's stock and immediately sell it on the market for cash.
When it comes time to return the borrowed shares, they'll buy them on market, hopefully for less cash than they sold them for. They then take the difference as profit (or loss).
So, it seems many market participants are sceptical of the Sayona share price's future performance. Perhaps more important to consider, though, is why.
What's turned short sellers' attention to the ASX 200 lithium share?
There are many reasons short sellers might turn to a particular company.
For instance, short sellers might be disenchanted by the future of lithium prices and might be shorting the lithium hopeful in response.
Interestingly, Sayona's journey towards profitable lithium production looks like it could be a unique one.
Sayona hopes to restart production at its North American Lithium operation this quarter.
However, much of the lithium produced at the operation will be bought by the company's partner Piedmont Lithium Inc (ASX: PLL) for up to US$900 a tonne. That's far below current spot prices. Additionally, lithium prices have been tipped to fall in the coming years as supply catches up with demand.
Of course, the company's whopping short position might have nothing to do with its business. It's also worth noting its ASX 200 lithium peers Core Lithium Ltd (ASX: CXO), Liontown Resources Ltd (ASX: LTR), and Lake Resources N.L. (ASX: LKE) are also among the ASX's 10 most shorted shares right now.
Still, I'd argue a high short position might represent a risk for long-term investors. Thus, those interested in Sayona shares might want to contemplate its considerable short position before buying its shares.
