Below £5, are Aviva shares the best bargain on the FTSE 100?

This Fool thinks that at their current price Aviva shares are a steal. Here he details why he’d add the insurance stalwart to his portfolio.

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Image source: Aviva plc

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Early April saw Aviva (LSE: AV) shares flirt with the £5 mark. They failed to break it and since then have retracted.

But now at just £4.66 a piece, are they one of the best bargains available to investors on the FTSE 100?

The Aviva share price has been on a tear recently and it’s easy to see why some investors may think they’re too late to the party.

In the last 12 months, the stock has climbed 12.3%. It has put up a strong performance so far in 2024, rising 7.5%.

But April saw the stock pull back. With it falling 5.4% in the last month, that could be a window of opportunity.

Any value left?

So, at their current price, is there any value left? One fundamental valuation metric is the price-to-earnings (P/E) ratio. Let’s start there.

Right now, Aviva shares trade on a trailing P/E of 12.4. That comes in slightly higher than the average of its Footsie peers (11), but it’s significantly lower than its competitors such as Prudential (14.2) and Admiral Group (24.4). Based on that, I think there’s still value left in the share price.

A meaty yield

On top of this, there’s most certainly value in collecting its 7.2% dividend yield. That’s way above the Footsie average of 3.9%. Last year, Aviva increased its payout by 8% while also announcing a fresh £300m share buyback scheme.

Buybacks help reduce the number of shares in circulation, in turn boosting a company’s earnings per share. That could help drive the stock further.

Moving in the right direction

But aside from that, what about the business itself? Does it look in good shape?

I’d say so. That’s especially after CEO Amanda Blanc has accelerated its streamlining mission that has been ongoing for years.

Under her tenure, Aviva has got rid of a large proportion of its underperforming businesses. Now, the firm is focusing on its most profitable markets.

With it slimming down its operations, it has also cut costs. Last year Aviva announced that it delivered its £750m cost reduction target a year earlier than it anticipated.

After a period of struggle, it seems Aviva is heading in the right direction. Last year it turned in a £1.47bn operating profit, up 9% from the year prior, amid a tough economic backdrop. That, in my opinion, highlights the underlying potential of the business.

The risks

Streamlining inherently comes with risks. Aviva is now reliant on a couple of core markets. If they falter, that could spell trouble for the firm.

Insurance is also a highly competitive industry. While Aviva is an established player in the field, it faces the threat of new players entering the space.

A bargain to be had?

Is it the biggest bargain on the FTSE 100? I’d say that’s probably a stretch. But would I still buy its shares today if I had the cash? Definitely.

The stock has been trending upwards and I reckon this positive momentum can keep pushing it higher.

Add to that the impressive moves the business has made and a healthy yield to tide me over, and I think Aviva shares could be a savvy buy.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Charlie Keough has no position in any of the shares mentioned. The Motley Fool UK has recommended Admiral Group Plc and Prudential Plc. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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