Diageo’s share price has risen to 3,800p. What’s the best move now?

Diageo’s share price has surged as the world has reopened after the pandemic. Edward Sheldon looks at whether he should take profits or hold on.

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Diageo (LSE: DGE) is a stock I bought a lot of in 2020 during the pandemic. Throughout the year, I purchased DGE for my ISA on three occasions, paying between 2,464p and 2,685p for my shares.

These purchases are now paying off. Today, Diageo’s share price is near 3,800p, meaning I’ve generated some nice paper profits. At that level, it’s close to it’s all-time high.

So what’s the best move now? Should I take some profits off the table? Or should I hold on in the hope of further share price gains?

Can Diageo’s share price keep rising?

Recent trading updates from Diageo have been very encouraging, in my view. Take the group’s Capital Markets Day update on 16 November, for example.

Here, Diageo said it now expects organic net sales growth of at least 16% in the first half of fiscal 2022, and organic operating profit growth to be ahead of sales growth. It also said it expects organic sales growth to be between 5% and 7% for fiscal 2023-2025. That compares to growth of 4-6% during 2017-2019. These are strong forecasts and show the FTSE 100 company expects to grow at a decent clip in the years ahead.

In the update, Diageo also told investors that it hopes to increase its total beverage alcohol (TBA) market share value from 4% to 6% by 2030. This would represent a 50% increase across the beer, wine, and spirits markets.

We believe our sales growth trajectory has accelerated, underpinned by the strength of our advantaged position across geographies, categories and price tiers. TBA is a large, growing and attractive sector of which Diageo currently has a 4% value share. With continued investment in marketing, digital capabilities and our people, we have significant headroom for growth. This gives us the confidence that we can grow Diageo’s value share of TBA from 4% in 2020 to 6% by 2030,” said CEO Ivan Menezes.

It’s worth noting that after this update, a number of brokers raised their price targets for the stock. Barclays, for example, raised its target price to 4,770p from 4,400p. Meanwhile, Jefferies raised its target price to 4,800p from 4,200p. Interestingly, one analyst believes that if we factor a 6% TBA market share into the current valuation, the share price should be about 40% higher than it is currently. That would equate to a price of over 5,000p.

DGE shares: my move now

Considering this encouraging news, and brokers’ price target upgrades, I’m going to hold on to my Diageo shares for now.

The stock is not without risk, of course. If Covid-19 returns with a vengeance and we face further lockdowns, I’d expect the share price to fall. It seems the market is certainly concerned about this scenario today. It’s worth noting that the current valuation doesn’t leave a huge margin of safety. 

However, right now, the share price trend is up. So I’m going to hold out for further gains.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be considered so you should consider taking independent financial advice.

Edward Sheldon owns shares of Diageo. The Motley Fool UK has recommended Barclays and Diageo. 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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