Storm The Castle: AES Corporation (AES)

Editor's Note: Any reference to TheStreet Ratings and its underlying recommendation does not reflect the opinion of TheStreet, Inc. or any of its contributors including Jim Cramer.

Trade-Ideas LLC identified AES Corporation ( AES) as a "storm the castle" (crossing above the 200-day simple moving average on higher than normal relative volume) candidate. In addition to specific proprietary factors, Trade-Ideas identified AES Corporation as such a stock due to the following factors:

  • AES has an average dollar-volume (as measured by average daily share volume multiplied by share price) of $136.7 million.
  • AES has traded 5.3 million shares today.
  • AES is trading at 1.63 times the normal volume for the stock at this time of day.
  • AES crossed above its 200-day simple moving average.

'Storm the Castle' stocks are worth watching because trading stocks that begin to experience a breakout can lead to potentially massive profits. Once psychological and technical resistance barriers like the 200-day moving average are breached on higher than normal relative volume, the stock is then free to find new buyers and momentum traders who can ultimately push the stock significantly higher. Regardless of the impetus behind the price and volume action, when a stock moves with strength and volume it can indicate the start of a new trend on which early investors can capitalize on. In the event of a well-timed trading opportunity, combining technical indicators with fundamental trends and a disciplined trading methodology should help you take the first steps towards investment success.

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More details on AES:

The AES Corporation operates as a diversified power generation and utility company. It owns and/or operates power plants to generate and sell power to customers, such as utilities, industrial users, and other intermediaries. The stock currently has a dividend yield of 2.9%. AES has a PE ratio of 1. Currently there are 6 analysts that rate AES Corporation a buy, no analysts rate it a sell, and 3 rate it a hold.

The average volume for AES Corporation has been 5.9 million shares per day over the past 30 days. AES has a market cap of $9.6 billion and is part of the utilities sector and utilities industry. The stock has a beta of 0.89 and a short float of 2.1% with 1.58 days to cover. Shares are down 0.4% year-to-date as of the close of trading on Wednesday.

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TheStreetRatings.com Analysis:

TheStreet Quant Ratings rates AES Corporation as a hold. The company's strengths can be seen in multiple areas, such as its impressive record of earnings per share growth, compelling growth in net income and notable return on equity. However, as a counter to these strengths, we also find weaknesses including generally higher debt management risk, poor profit margins and a generally disappointing performance in the stock itself.

Highlights from the ratings report include:
  • AES CORP reported significant earnings per share improvement in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past two years. We feel that this trend should continue. This trend suggests that the performance of the business is improving. During the past fiscal year, AES CORP increased its bottom line by earning $1.09 versus $0.37 in the prior year. This year, the market expects an improvement in earnings ($1.27 versus $1.09).
  • The net income growth from the same quarter one year ago has significantly exceeded that of the S&P 500 and the Independent Power Producers & Energy Traders industry. The net income increased by 344.8% when compared to the same quarter one year prior, rising from -$58.00 million to $142.00 million.
  • Regardless of the drop in revenue, the company managed to outperform against the industry average of 13.9%. Since the same quarter one year prior, revenues slightly dropped by 6.5%. The declining revenue has not hurt the company's bottom line, with increasing earnings per share.
  • The gross profit margin for AES CORP is currently lower than what is desirable, coming in at 25.58%. It has decreased from the same quarter the previous year. Regardless of the weak results of the gross profit margin, the net profit margin of 3.56% is above that of the industry average.
  • The debt-to-equity ratio is very high at 5.07 and currently higher than the industry average, implying increased risk associated with the management of debt levels within the company. Along with the unfavorable debt-to-equity ratio, AES maintains a poor quick ratio of 0.77, which illustrates the inability to avoid short-term cash problems.

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