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Are Diageo (LSE: DGE) shares mega-cheap? Actually? Or am I over-egging this? It’s Christmas, in spite of everything. A time of extra and all that. Perhaps I’ve had too many Captain Morgans. Diageo sells that. But I stand by it.
The FTSE 100 spirits big has had an absolute stinker of a 12 months. All hangover, no kick. The shares are down 55% over three years and 33% within the final 12 months. I’ve held the inventory for 2 entire years, having purchased shortly after its preliminary revenue warning in November 2023, and I’m struggling. So am I able to promote?
Not an opportunity. I purchased my beloved one a bottle of Baileys for Christmas. Diageo sells that. I went to the pub on Christmas Eve and younger folks have been necking Guinness like there was no tomorrow. Diageo sells that too.
The craft gin revolution might have peaked, however have drinkers actually misplaced their style for Tanqueray, one other Diageo model? That might be a primary.
This FTSE inventory can struggle again
There’s a number of discuss a brand new sober era. Younger folks have given up the booze, simply as older generations stop smoking. I’m not satisfied. Humanity has been guzzling alcohol for millennia. Will that out of the blue cease on our watch?
There’s little question these are unstable occasions for Diageo. In full-year 2025, reported web gross sales fell. By 0.1%. In that context, a 33% share value drop appears extreme to me.
Reported web gross sales nonetheless totalled $20.2bn. This isn’t precisely an organization on the brink, regardless of the share value suggests. Natural gross sales really grew, whereas free money movement climbed $100m to $2.7bn.
Perhaps I’m being too bullish. Reported working revenue slumped 27.8% to $4.3bn in 2025, whereas web debt is now a hefty $21.9bn. That’s removed from ultimate.
Stable gross sales and money flows
Buyers are forward-looking, and 2026 appears sticky with natural web gross sales forecast to be flat or barely decrease. That’s a downer. Gross sales of Chinese language white spirits are weak, whereas US drinkers are in need of money and staying dry. Europe appears extra encouraging although. Diageo is sharpening its act, reducing prices, and putting in a “more rigorous, performance-driven culture” throughout the enterprise. It must.
It’s has obtained one large resolution proper, for my part. ‘Drastic’ Dave Lewis, the person who easily turned Tesco round, joins as chief government on New 12 months’s Day.
I’m optimistic. Brokers are optimistic too. Consensus forecasts level to a one-year share value goal of two,126p. If appropriate, that’s up 26.7% from at the moment.
The falling Diageo share value has pushed up the dividend yield. In 2026, traders are 4.63%. Mixed with that development forecast, that’s a complete return of 31.33%. It will flip £10,000 into £13,133. We’ll see.
Forecasts are simply educated guesses. The worldwide economic system may battle, markets may plunge, and recession is a danger. However with a price-to-earnings ratio of 13.5, Diageo now has a valuation cushion. Perhaps not mega-cheap. However low cost sufficient for me to think about shopping for one other splash of its shares. Then rejoice with a glass of Johnnie Walker. Diageo makes that too. Right here’s to a happier new 12 months!
