Back in 2023, Diageo (LSE: DGE) issued a profit warning after seeing falling sales in Latin America, and the share price started to slide. And slide, and slide…
But this is one of the world’s leading booze makers, responsible for many global headline brands — Johnnie Walker, Guinness, Smirnoff, Rumple Minze… it’s got ’em all.
Good money after bad?
It’s tempting to buy into Diageo just because of the share price slump. And for investors who already own a stake, the urge to double down must be strong.
After all, the world isn’t likely to give up on booze any time soon — I’m not a gambler, but I might take a wager on that. And much of Diageo’s troubles stem from global inflation, tariffs and trade wars, and the resulting drive to seek out cheaper alcoholic beverages.
When pockets are squeezed, Aldi’s Highland Earl (£12.49) can be a more attractive proposition than Johnnie Walker Black Label (£36 at Tesco). So does it make sense to Buy, and Hold until the economy gets better?
It’s vital to keep an eye on valuation. And even after the big price fall, we’re still looking at a forecast price-to-earnings (P/E) ratio of 13 for this year. That’s not obviously screaming cheap. So is it possible Diageo shares have just been overvalued, and we’ve had a needed correction?
New boss to the rescue
I don’t think the headline P/E reflects Diageo’s true worth either. There’s around £20bn net debt on the books against a market-cap of £34bn. On that basis, the valuation still looks a bit premium to me. And one of the tasks facing new CEO Sir Dave Lewis — he of Tesco turnaround fame — is to convince investors the stock deserves it.
Sir ‘Drastic’ Dave had this to say at Q3 update time…
North America remains our biggest challenge, where market conditions are soft and our offer needs to be more competitive … Progress on the re-design of our new strategy and the shaping of a more competitive operating framework is well underway.
CEO Sir Dave Lewis, 6 May 2026
Judging by his past, that new strategy is expected to be tough. Employees around the world are reportedly waiting nervously for the cost-cutting/jobs axe to fall.
So what should investors do?
It’s tempting to buy Diageo shares just on the back of Lewis’s track record. Anyone who invested early in his reign at Tesco has done well out of it — even with that recovery being derailed for a couple of years by the pandemic.
A look at the Diageo share price suggests investor sentiment might be turning. Since March’s low, it’s up around 14%. It’s dangerous to think in terms of timing, for sure — but we might just be at a pivot point now.
So should investors consider buying Diageo now? Consider, yes, I’d say definitely. Will I buy? The temptation is strong. But weighing valuation against debt means I need to observe and think some more. I’ll wait.
Should you invest £5,000 in Diageo Plc right now?
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Alan Oscroft does not hold any positions in the companies mentioned.
