Is FTSE 100-member Aviva’s share price heading back to 300p?

The performance of a number of FTSE 100 shares has been disappointing in recent months. The index has come under pressure from fears surrounding the prospects for the world economy, with a number of investors seemingly seeing some challenges are ahead after a period of strong growth.

Shares such as Aviva(LSE: AV) have come under pressure, with the FTSE 100 insurer recording a decline in its market valuation of 23% since May. Could this mean that it’s heading back to the 300p level last seen in 2013? Or could it be worth buying alongside a relatively risky small-cap which released an update on Monday?

Uncertain prospects?

The smaller company in question is advanced materials engineering group Versarien(LSE: VRS). It reported an update on its activities in China, where it’s seeking to develop its relationships within the world’s second-largest economy. It has made progress in establishing the ‘China-UK Jinan Graphene Industrial Park’, where detailed discussions with the various parties in Jinan are progressing.

It has also signed a Framework Agreement with the Qingdao Municipal Bureau of Commerce. It covers cooperation between the parties in the fields of graphene research, development and industrialisation. The company remains conscious of the need to protect its intellectual property, while also seeking to establish formal relationships with the appropriate parties.

With the Versarien share price having fallen by around 27% in less than two months, it’s clearly a highly-volatile share with an uncertain outlook. However, with the potential to deliver strong financial performance in the long term, I feel it may be of interest to less risk-averse investors.

Recovery potential?

The fall in the Aviva share price is, of course, disappointing for investors in the stock. With the business now without a permanent CEO following the recent resignation of Mark Wilson, its near-term prospects may be relatively uncertain. However, the company is in a much stronger position than it was in 2013, which means that a decline to 300p from its current share price of 430p seems unlikely.

The insurer has been able to strengthen its asset base in recent years so that it’s now highly profitable, efficient and has exposure to a wide range of markets where the risk/reward opportunity seems to be favourable. And since the stock has a price-to-earnings (P/E) ratio of around 7.5, it seems to already include a margin of safety, given its earnings growth outlook over the next couple of years.

In terms of Aviva’s growth prospects, the company is due to report a rise in net profit of 8% next year. Its financial strength was highlighted recently by its decision to utilise up to £3bn of excess capital to make acquisitions, reduce leverage, and commence a share buyback. As such, it seems to be in a strong position to deliver further growth under a new CEO. In fact, further share price falls in the near term could make it even more appealing from a long-term investment perspective, I believe.

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Peter Stephens owns shares of Aviva. The Motley Fool UK has no position in any of the shares mentioned. 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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