Texas oil services company Solaris Energy tumbles 17% after short report

Quotes on Solaris Energy, a small-cap company specializing in mobile energy and oilfield services, plunged 17% yesterday, March 17, following the release of the first short report from Morpheus Research, a new investigative research group focused on exposing corporate misconduct and fraud in the financial sector while betting against the stocks of such companies.

Yesterday, Solaris Energy Infrastructure fell 16.9% to $20.50 per share, marking its largest drop since January 27, according to Bloomberg, before dipping slightly in premarket trading today.

The plunge came after Morpheus Research released a report claiming that Solaris’s new division — Solaris Power Solutions — was built on an overvalued acquisition of a company involving an individual with a record of environmental violations. The report focuses on Solaris’s transition from a traditional oilfield services provider to a player in the distributed power market.

In July 2024, Solaris announced a restructuring plan that included acquiring Mobile Energy Rentals LLC (MER), a gas turbine leasing company focusing on “energy, data center, and other C&I end-markets.” The new division is run by John Tuma and John Johnson, former owners of MER. According to the investigation, Tuma was convicted in 2012 for illegally dumping hazardous waste into a river in Louisiana, obstructing a U.S. Environmental Protection Agency inspection, and lying under oath in court.

Morpheus Research argues that Solaris significantly overpaid for MER, as it shelled out $60 million in cash and about 16.5 million shares, while also paying down MER's $71 million debt. Moreover, MER reportedly has only one client, Morpheus suspects: Elon Musk’s AI startup, xAI.

“Ultimately, Solaris doubled its leverage, paying 3.19x book value for a commoditized business with a sole data center customer,” Morpheus Research stated.

Neither Solaris Energy nor Morpheus Research has responded to Bloomberg’s requests for comment.

Morpheus Research includes former employees at Hindenburg Research, a short-selling firm that shut down in January, Bloomberg reports. Hindenburg had made a name for itself with reports targeting high-profile billionaires such as Gautam Adani (one of India’s richest people), Jack Dorsey (a cofounder of Twitter), and Carl Icahn (one of Wall Street’s most successful investors).

Additionally, Hindenburg went after the stocks of Supermicro and Roblox, and it made accusations against Kazakhstan’s Freedom Holding and Kaspi.kz. Both financial firms denied the allegations.

Solaris went public on the NYSE in 2017 at $12 per share. Its core oilfield services business has been struggling of late, as evidenced by five consecutive quarters of revenue declines in 2022-2023. In January 2024, the stock plummeted to a multiyear low of $6.73 per share, roughly 44% below its IPO price.

However, the July 2024 announcement of the MER acquisition triggered a 190% surge in Solaris. According to MarketWatch, all seven analysts covering the name have “buy” recommendations. Their average target price is $49 per share, more than double the current market price.