Value-centric investors are constantly seeking stocks priced below their intrinsic value. One stock that deserves attention is The AES Corp (AES, Financial). Currently priced at $18.37, the stock recorded a daily gain of 2.03% and a 3-month decrease of 11.24%. Its fair valuation, as indicated by the GF Value, is $27.5.
Understanding the GF Value
The GF Value represents the intrinsic value of a stock, derived from our exclusive method. It is calculated based on historical multiples, GuruFocus adjustment factor, and future business performance estimates. This value is considered the fair price at which the stock should be traded.
However, a comprehensive analysis is necessary before making an investment decision. Despite its seemingly attractive valuation, The AES Corp (AES, Financial) has certain risk factors that should not be overlooked. These risks are primarily reflected through its low Altman Z-score of 0.54. These indicators suggest that The AES, despite its apparent undervaluation, might be a potential value trap.
The Altman Z-score Explained
The Altman Z-score is a financial model invented by New York University Professor Edward I. Altman in 1968. It predicts the probability of a company entering bankruptcy within a two-year time frame. A score below 1.8 suggests a high likelihood of financial distress, while a score above 3 indicates a low risk.
Company Snapshot: The AES Corp
The AES is a global power company with over 32 gigawatts of generation capacity. It owns and operates six electric utilities, distributing power to 2.6 million customers. Despite its promising business model, the company's stock price and GF Value suggest a need for a more profound exploration of its value.
The AES's Low Altman Z-Score: A Breakdown of Key Drivers
An analysis of The AES's Altman Z-score suggests potential financial distress. The EBIT to Total Assets ratio, an indicator of a company's operational effectiveness, shows a descending trend (2021: 0.03; 2022: 0.01; 2023: 0.03). This trend suggests The AES might not be utilizing its assets to their full potential to generate operational profits, negatively impacting its overall Z-score.
Conclusion: The AES Corp - A Value Trap?
Despite its seemingly attractive valuation, The AES Corp's low Altman Z-score and declining EBIT to Total Assets ratio suggest potential financial distress. These indicators highlight the importance of thorough due diligence and suggest that The AES Corp might be a potential value trap.
GuruFocus Premium members can find stocks with high Altman Z-Score using the Walter Schloss Screen .
