Aviva (LSE:AV.) shares have seen mixed performance recently, coming off a recent dip of about 1% in the past day and sliding 3% over the past month. The stock’s year-to-date gain remains firmly positive, which raises questions about its current valuation ahead of further catalysts.
See our latest analysis for Aviva.
Over the past year, Aviva has delivered a robust 42% total shareholder return, even as recent weeks have seen the share price ease off its highs. This momentum points to solid long-term confidence in the company’s progress, despite short-term fluctuations and shifting market sentiment.
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With solid returns and recent pullbacks, the big question now is whether Aviva is trading at a bargain or if the market has already factored in all the anticipated growth, leaving little room for upside.
Aviva’s latest fair value is slightly above its last close, suggesting a mild undervaluation that could be important for investors seeking upside. The narrative points to structural industry shifts and business transformations as the foundation for this forward-looking valuation.
*Accelerating the shift to ‘capital-light’ businesses (now over 66% of earnings and targeting 70% or more after the Direct Line integration) is driving improved group profit margins, lower capital requirements, and better return on equity. This creates a strong forward-looking outlook for net earnings and cash generation.*
Read the complete narrative.
Curious how a strategic pivot in business mix could fuel margin gains? The fair value estimate draws on some game-changing growth and profitability forecasts. Want to uncover the combination of ambitious projections and future assumptions behind that price? The real rationale is one click away.
Result: Fair Value of £6.84 (UNDERVALUED)
Have a read of the narrative in full and understand what’s behind the forecasts.
However, risks such as slower revenue growth or execution challenges with recent acquisitions could undermine these favorable margin and valuation forecasts for Aviva.
Find out about the key risks to this Aviva narrative.
While the latest fair value suggests Aviva is undervalued, looking at the price-to-earnings ratio paints a different picture. At 32.9x, Aviva’s ratio is much higher than the UK insurance industry average of 12.8x and a fair ratio of 22.4x. This sizeable gap suggests there may be greater valuation risk and raises the question of whether the market could quickly adjust if sentiment shifts.