On July 21, 2023, The AES Corp (AES, Financial) experienced a gain of 3.02%, with its stock price hitting $22.49. Despite a loss per share of $-0.82, The AES boasts a market cap of $15.1 billion and sales of $13 billion. The GuruFocus valuation method suggests that the stock is modestly undervalued, with a GF Value of $26.21.
The AES is a global power company with a generation portfolio of over 32 gigawatts. As of year-end 2022, the portfolio is comprised of renewable energy (46%), gas (32%), coal (20%), and oil (2%). The AES operates six electric utilities, distributing power to 2.6 million customers.
Understanding The AES's Valuation
The GF Value of The AES Corp (AES, Financial) is calculated based on historical trading multiples, an adjustment factor from GuruFocus based on past performance and growth, and estimates of future business performance. A stock is considered overvalued if its price significantly exceeds the GF Value Line, indicating potentially poor future returns. Conversely, if the stock price is significantly below the GF Value Line, it may be undervalued, suggesting high future returns. With a current price of $22.49 per share, The AES is believed to be modestly undervalued.
Given its undervaluation, the long-term return of The AES's stock is likely to exceed its business growth. This is visualized in the GF Value chart below:
Link: These companies may deliver higher future returns at reduced risk.
Assessing The AES's Financial Strength
Investing in companies with poor financial strength poses a high risk of permanent capital loss. To avoid this, investors must scrutinize a company’s financial strength before purchasing shares. Key indicators include the cash-to-debt ratio and interest coverage. The AES's cash-to-debt ratio of 0.09 ranks worse than 74.85% of companies in the Utilities - Regulated industry, indicating poor financial strength.
This is the debt and cash of The AES over the past years: 
Evaluating The AES's Profitability
Investing in profitable companies carries less risk, particularly those with consistent profitability over the long term. The AES has been profitable 6 years over the past 10 years. With revenues of $13 billion and an operating margin of 18.47%, which is better than 68.2% of companies in the Utilities - Regulated industry, The AES's profitability is considered fair.
Exploring The AES's Growth
Growth is a crucial factor in a company's valuation. Companies that grow faster create more value for shareholders, especially if the growth is profitable. The AES's average annual revenue growth is 7.3%, ranking worse than 52.59% of companies in the Utilities - Regulated industry. The 3-year average EBITDA growth is -13.6%, which ranks worse than 89.11% of companies in the same industry.
ROIC vs WACC
Comparing a company's return on invested capital (ROIC) to its weighted average cost of capital (WACC) is another way to assess profitability. When the ROIC is higher than the WACC, it implies the company is creating value for shareholders. For the past 12 months, The AES’s ROIC is 19.51, and its WACC is 7.16.
The historical ROIC vs WACC comparison of The AES is shown below: 
Conclusion
In conclusion, The AES Corp (AES, Financial) appears to be modestly undervalued. Its financial condition is poor, its profitability is fair, and its growth is worse than 89.11% of companies in the Utilities - Regulated industry. To learn more about The AES stock, you can check out its 30-Year Financials here.
To find high-quality companies that may deliver above-average returns, please check out the GuruFocus High Quality Low Capex Screener.
