Incredibly, the Diageo (LSE: DGE) share price trades at levels last seen 14 years ago, back in spring 2012. It’s been a wild ride since, with the stock peaking at around 4,036p in December 2021, when Covid lockdowns had us all experimenting with cocktails at home. Today, the FTSE 100 drinks giant trades at just 1,594p. What went wrong?
After the pandemic, inflation surged and drinkers tightened their belts. Diageo shares started to slide and things came to a head on 10 November 2023. The board shocked markets by slashing guidance after sales in Latin America and the Caribbean plunged 20%. The region generated roughly 11% of group revenues.
Why did this FTSE 100 stock keep falling?
Drinkers traded down to cheaper local brands while distributors wrestled with excess stock. Soon, the weakness spread to the US, Europe, and China. Donald Trump’s tariffs added to the pain by hitting Mexican tequila and Canadian whisky exports to the US. Anxious investors started to worry about the impact of Gen Z sobriety and GLP-1 weight-loss drugs too.
I averaged down repeatedly but the shares only fell further.. A quick glance at its full-year net profits shows why.
- 2025 – $2.54bn
- 2024 – $3.87bn
- 2023 – $4.45bn
- 2022 – $4.33bn
- 2021 – $3.95bn
Today, Diageo shares are down a thumping 53% over five years and 20% over 12 months. Yet, lately, the mood has shifted. The shares have climbed almost 12% in a month. So, have we finally reached the bottom of the glass?
I’d love to say this followed a stunning set of numbers. Sadly, it didn’t. Third-quarter sales (6 May) rose just 0.3% to $4.5bn. That beat expectations, but only narrowly, and mostly down to two one-off boosts. Easter arrived earlier this year and distributors stocked up ahead of the FIFA World Cup. New chief executive Sir Dave Lewis refused to upgrade full-year guidance.
The US remains the big concern because it accounts for around 40% of net sales. Higher oil prices won’t help either. They squeeze consumers and push up transport costs at the same time.
So why has sentiment improved? Trump removed US tariffs on Scotch whisky. Investors spotted signs of stabilisation in Africa and Latin America. Deutsche Bank upgraded the shares to Buy, arguing that excessive market pessimism had already been priced in.
Is Diageo finally worth considering again?
I’ve noticed consumer shares generally picking up as markets cling to hopes of some kind of resolution to the Iran crisis. Personally, I’m not banking on one any time soon. Yet, I have no plans to sell my Diageo shares. Consumer trends are cyclical. At some point, they’ll swing again.
This latest rally could easily fizzle out. Yet with Lewis running the show and the price-to-earnings ratio still a modest 13.2, I still think the recovery will eventually come. I think Diageo shares looks worth considering today, but I wouldn’t expect them to rocket. The road to recovery is likely to be bumpy, but I can feel it getting closer.
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Harvey Jones owns shares in Diageo.
