Reddit posts are driving Tesla shares more than fundamentals, Barclays study finds

Published Tue, Feb 23 20219:10 AM ESTUpdated Tue, Feb 23 20214:21 PM EST

There may be a connection between Tesla's stock performance and the amount of online attention the electric car maker receives on social media platforms such as Reddit, a Barclays study found. "On the autos team, we have painfully learned that social media memes can matter more for TSLA share performance than actual financial metrics, fundamentals or (dare we say) valuation," the firm said Tuesday in a note to clients. "There is a positive correlation between the number of WSB [WallStreetBets] submissions exclusively citing TSLA, and the performance of the stock." The findings come as retail investors play an increasingly important role in the market. Stuck at home during the pandemic with nothing to do, many people have turned to stock trading. The influence of individual investors has also been amplified by popular online communities such as the WallStreetBets board on Reddit. This was highlighted during the GameStop trading frenzy last month. Barclays' auto analysts, along with the bank's investment sciences team, found that increased WallStreeBets submissions mentioning Tesla have been predictive of stock returns. The firm only counted posts that referenced "$TSLA" or "TSLA" with no other identifiable tickers. The analysts looked at the correlation between the total number of posts mentioning Tesla and its stock return, as well as the relationship between changes in post count and returns. They found that each has a "statistically significant relationship." Barclays said that tracking changes in total post counts about Tesla from day to day is the more "valid statistical test." Analysts led by Ryan Preclaw noted an increase of seven or more submissions from one day to the next has been predictive of outsized returns for Tesla shares on the third day. Shares of the electric car maker traded higher in every instance where there was an increase of 10 or more posts about Tesla, giving the firm "some comfort that the statistical evidence is finding a real relationship." Tesla has encountered weakness in recent sessions following a banner 2020 and a strong start to 2021. The stock fell more than 8% on Monday for its worst day since September , and it added to those declines on Tuesday. The stock is now 22% below its January all-time high. Barclays noted that few WallStreetBets posts focused just on Tesla in recent days. The bank has an underweight rating on Tesla and a $230 price target on the stock, significantly below its Monday close of $714.50. The average rating on the stock is a hold, with the average price forecast coming in at $612.40, according to data from FactSet. While Barclays found a relationship between posts on WallStreetBets and Tesla's stock performance, the firm was quick to note that the sample size is still relatively small. "This is simply such a new phenomenon that there isn't enough proper history to gain full confidence that it will behave similarly in the future as it has in the past," Barclays said. —CNBC's Michael Bloom contributed reporting.

A Tesla car in London.

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There may be a connection between Tesla's stock performance and the amount of online attention the electric car maker receives on social media platforms such as Reddit, a Barclays study found.

"On the autos team, we have painfully learned that social media memes can matter more for TSLA share performance than actual financial metrics, fundamentals or (dare we say) valuation," the firm said Tuesday in a note to clients. "There is a positive correlation between the number of WSB [WallStreetBets] submissions exclusively citing TSLA, and the performance of the stock."