Where will the Diageo share price go in 2022?

I have been watching the Diageo share price closely for a while now and here’s why I am considering an investment in 2022.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

Alcohol giant Diageo (LSE:DGE) had an impressive showing in 2021, recording 31.8% returns in the 12-month period. The Diageo share price constantly pushed its all-time highs in 2021. But its shares currently looks overvalued at 4,060p, trading at a profit-to-earnings (P/E) ratio of 35 times.

But a company’s P/E ratio is not the only marker of future performance. As we saw this year, overvalued companies like Croda International still grew steadily despite inflated valuations. Will strong core financials and expansion efforts push Diageo higher in 2022 — or do I expect the company to face a long, sideways accumulation this year?

5 Stocks For Trying To Build Wealth After 50

One notable billionaire made 99% of his current wealth after his 50th birthday. And here at The Motley Fool, we believe it is NEVER too late to start trying to build your fortune in the stock market. Our expert Motley Fool analyst team have shortlisted 5 companies that they believe could be a great fit for investors aged 50+ trying to build long-term, diversified portfolios.

Click here to claim your free copy now!

Reason for success

After the drop-off in 2020, the alcohol market rebounded well. And Diageo made some shrewd moves during the pandemic to use excess cash towards expansion in key foreign markets. The company went on a targeted spending spree, amassing a lot of successful distilleries and brands in Asia and Africa.

I think Diageo’s use of data and processing algorithms to pinpoint potential purchases has been impressive. As a leader in the UK and US, the company managed to build on its premium offerings, given the segment’s quick growth in the last decade. The company is now the global leader in the premium categories and international spirits, with retail sales of over £4.5bn in the financial year 2021 (ended 20 June).

Ready to drink (RTD) cocktails is the fastest-growing alcohol category in the US, growing 42% between 2017 and 2020. Diageo’s new Crown Royal RTD cocktail line quickly became the third-largest spirits RTD brand in the US. As a result, the company also managed to raise cash in hand to £3bn in FY21. I think this is a sign of more expansion in emerging markets like China, India and Latin America.

Emerging market growth

This brings me to two key markets for Diageo. Over the next decade, it is estimated that China and India will collectively consume more alcohol than all of Europe combined. And China already leads most alcohol consumption charts, outstripping total sales of Germany, the UK and the USA combined!

The alcohol giant has identified both premium and cheap offerings in Asia while also targeting regional spirits that are growing in popularity. Diageo is amassing distilleries in Greater China that specialise in local spirits like Baijiu.

The company also used the pandemic pause very well by working on its eCommerce operations. Via partnerships with existing delivery companies in Asia, America and Africa, the company grew online sales by 70% last year. Although this accounts for a small fraction of total sales, I think it is a positive sign to establish a robust online sales framework for alcohol.

Concerns

While past performance is used to analyse a firm’s potential, it does not guarantee success. I think falling alcohol consumption levels across the world is a threat for Diageo. Youngsters are opting for healthier lifestyles, and alcohol consumption is falling in several key markets like the UK, Australia and Russia.

And Diageo is aiming for net-zero emissions across all operations by 2030. Given Diageo’s distillery network, I think this will be a cash-intensive operation. But I think Diageo has a strong brand portfolio and a blueprint for sustained growth. I am considering a £1,000 investment in the company in January because the Diageo share price could grow next year even if we are forced into another lockdown. 

FREE REPORT: Why this £5 stock could be set to surge

Are you on the lookout for UK growth stocks?

If so, get this FREE no-strings report now.

While it’s available: you'll discover what we think is a top growth stock for the decade ahead.

And the performance of this company really is stunning.

In 2019, it returned £150million to shareholders through buybacks and dividends.

We believe its financial position is about as solid as anything we’ve seen.

  • Since 2016, annual revenues increased 31%
  • In March 2020, one of its senior directors LOADED UP on 25,000 shares – a position worth £90,259
  • Operating cash flow is up 47%. (Even its operating margins are rising every year!)

Quite simply, we believe it’s a fantastic Foolish growth pick.

What’s more, it deserves your attention today.

So please don’t wait another moment.

Get the full details on this £5 stock now – while your report is free.

Suraj Radhakrishnan has no position in any of the shares mentioned. The Motley Fool UK has recommended Croda International 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.

More on Investing Articles

A beach at sunset where there is an inscription on the sand "Breathe Deeeply".
Investing Articles

Stock market crash: here’s why falling prices is good news

Over in the US, a stock market crash is battering high-priced stocks. But I see falling shares as an opportunity…

Read more »

Hand flipping wooden cubes for change wording" Panic " to " Calm".
Investing Articles

These 5 FTSE 100 shares crashed in 2022. I’d buy 1 today

Although the FTSE 100 index is flat in 2022, some Footsie shares have crashed hard this year. But I see…

Read more »

Passive income text with pin graph chart on business table
Investing Articles

How investors can boost their passive income when the FTSE is falling

Stock markets are plagued with fears right now. Here's why I firmly believe those fears improve our passive income prospects.

Read more »

Image of person checking their shares portfolio on mobile phone and computer
Investing Articles

2 cheap UK shares to buy right now!

Recent market volatility means many top stocks now trade at rock-bottom prices. Here are two cheap UK shares I'm thinking…

Read more »

Rolls-Royce's business aviation engine, the Pearl 700
Investing Articles

The Rolls-Royce share price is just pennies. Am I missing something?

As the Rolls-Royce share price lingers in penny stock territory, our writer revisits the investment case that has attracted him…

Read more »

Compass pointing towards 'best price'
Investing Articles

How to put a valuation on the Woodbois share price

The Woodbois share price has fallen from its recent spike, so should I buy now? And how can I work…

Read more »

Inflation in newspapers
Investing Articles

I’d fight inflation with these 2 FTSE 100 dividend shares

With inflation hitting a 9%, I'm boosting my passive income and turning to these two FTSE 100 dividend stocks.

Read more »

New Ways of Investing - Hands Only Using Smart Phone
Investing Articles

2 cheap Footsie stocks to buy for BIG dividends!

The recent stock market sell-off leaves plenty of top stocks looking too cheap to miss. Here are two great Footsie…

Read more »