After a powerful first quarter, the Aviva (LSE: AV.) share price has tapered off, down 4.7% since this yr’s excessive. However over the previous yr, it’s outperformed the Footsie and is now close to a seven-year excessive. 

The shares are buying and selling at £4.73, barely down from the Might excessive of £4.97.

So the place is the inventory headed from right here?

To search out out, I’m charting some key progress metrics which will reveal hidden clues.

Worth-to-earnings

I at all times examine the price-to-earnings (P/E) ratio first to get a tough concept of the worth. If the price is so much larger than earnings the inventory might be overvalued, limiting additional progress. However a low P/E ratio suggests the price hasn’t caught up with earnings but and additional progress is to be anticipated.

At present, the common P/E ratio on the UK market is eighteen.4, close to the best it’s been in a number of years. Aviva’s P/E ratio of 12.7 is relatively low, suggesting the inventory has respectable progress potential.

Dividend yield

One in every of Aviva’s key worth propositions is that it’s a identified dividend payer. The flexibility to provide again a portion of income to shareholders is a powerful indication that an organization is performing nicely. For the previous twenty years, it’s paid fluctuating annual dividends of between 15p and 30p per share. Total, there hasn’t been a lot progress however funds have been constant.

The dividend yield signifies what proportion of the present share price is paid yearly. At present at 7.68%, we are able to see from the chart that it’s been rising persistently since 2021. It’s now the seventh-highest dividend yield on the FTSE 100 — albeit barely under competitor Authorized & Common, in fifth place.

Debt

Debt could be very helpful to an organization if used appropriately. In truth, it’s thought-about a crucial a part of any profitable firm’s operations. However when used as a lifeline, it may grow to be an issue. The under chart exhibits three essential metrics: debt, fairness, and debt-to-equity (D/E) ratio. We will see that debt has been declining, which is nice. Nonetheless, fairness has declined at a sooner price, resulting in an increase within the D/E ratio.

The D/E ratio ought to ideally stay under one. With Aviva’s now at 0.9, it’s getting dangerously near having extra debt than fairness. It is a regarding scenario. If an organization doesn’t have enough fairness or money circulate to cowl its debt, it might default — or in a worst-case situation, go bankrupt.

Thankfully, Aviva has loads of money and property, in order that’s not a danger for now.

My verdict

Contemplating the above metrics, the Aviva share price nonetheless seems to be low-cost to me. That is mirrored within the P/E ratio and supported by future earnings estimates, which calculate it buying and selling at 42% under honest worth. However that doesn’t imply it’ll develop. 

The UK’s insurance coverage market is cut-throat and Aviva faces many rivals. If an financial restoration is delayed, customers could search out cheaper options, threatening income. With fairness declining and debt rising, it may’t afford to lose prospects at this important level. 

On paper, issues look good and I feel the share price might enhance from right here. However I wouldn’t count on large progress. Thankfully, the excessive dividend yield provides the inventory nice worth both approach.