Is the Diageo share price due a bounce?

The Diageo share price has had a difficult few years, but with the economy showing signs of improvement, is a recovery overdue?

| 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.

Image source: Britvic

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

In the chaotic world of investing, where market sentiment can shift almost overnight, finding a stock that offers both stability and growth can be incredibly rare. Enter Diageo (LSE:DGE), a global titan in the alcoholic beverages industry, whose portfolio reads like a who’s who of iconic brands. The Diageo share price has been on the slide for a number of years now, but is it due a recovery? I’ve taken a closer look.

The company

Founded in 1886, the business has been serving up drinks and steady returns to investors for well over a century. Today, with a market cap of £58.6bn, it stands as a heavyweight in the FTSE 100, offering a compelling story of resilience, value, and growth. Admittedly, in recent years, with changing consumer habits and an uncertain economy, things haven’t been going down as smoothly. The share price has fallen over 22% in the last five years alone.

Created with Highcharts 11.4.3Diageo Plc PriceZoom1M3M6MYTD1Y5Y10YALL1 Jun 201930 Jun 2024Zoom ▾Jul '19Jan '20Jul '20Jan '21Jul '21Jan '22Jul '22Jan '23Jul '23Jan '242020202020212021202220222023202320242024www.fool.co.uk

However, good investing is all about spotting opportunities. With the share price now hovering around the £26 mark, a discounted cash flow (DCF) calculation suggests it may be a surprising 31% below its fair value.

Should you invest £1,000 in Lloyds Banking Group right now?

When investing expert Mark Rogers has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets. And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if Lloyds Banking Group made the list?

See the 6 stocks

Looking closer at the price-to-earnings (P/E) ratio, the firm appears to be trading at decent value compared to peers, with a ratio of 17.6 times, just under the average of the sector. In other words, even in a sector known for its premium valuations, the business may be a relative bargain.

The future

Unlike tech startups promising exponential growth, this company clearly offers something more reliable—steady, consistent expansion. Analysts forecast annual earnings growth of 4.75% for the next five years. While this might not set pulses racing, it’s the kind of measured growth that compounds beautifully over time.

Over the past five years, the company has grown its earnings by a very healthy 7% per year. This track record through various economic climates—from Brexit uncertainties to pandemic disruptions—demonstrates its ability to deliver reliable growth when many others falter.

For income-seeking investors, the firm offers a dividend yield of 3.05%, outstripping many of its FTSE 100 peers. But is this dividend sustainable? With a payout ratio of 55%, it certainly appears so. This suggests that there is more than enough strength in the balance sheet to share profits generously while still retaining enough to reinvest in the business.

Diversity

For me, Diageo’s strength lies in its unparalleled brand diversity. From whiskey and gin to vodka and tequila, it appears to dominate every major spirit category. This isn’t just about having many brands; it’s about having the right ones. Each is a heavyweight in its class.

Risks

High debt levels may give some investors pause. But in the beverage industry, where brands are built over decades, such leverage is common. Companies often use their strong, stable cash flows to finance acquisitions and brand development. With a net profit margin of 19.67% and a history of smart brand building, Diageo seems well-equipped to manage this debt.

Overall

In today’s volatile market, where tech darlings can turn tech duds overnight, Diageo offers something refreshingly different—a business as timeless and reliable as the drinks it sells. With deep value in the Diageo share price, steady growth, generous dividends, and an unmatched brand portfolio, I feel like this one has a long and successful future ahead. I’ll be buying shares at the next opportunity.

Should you buy Lloyds Banking Group now?

Don’t make any big decisions yet.

Because Mark Rogers — The Motley Fool UK’s Director of Investing — has revealed 5 Shares for the Future of Energy.

And he believes they could bring spectacular returns over the next decade.

Since the war in Ukraine, nations everywhere are scrambling for energy independence, he says. Meanwhile, they’re hellbent on achieving net zero emissions. No guarantees, but history shows...

When such enormous changes hit a big industry, informed investors can potentially get rich.

So, with his new report, Mark’s aiming to put more investors in this enviable position.

Click the button below to find out how you can get your hands on the full report now, and as a thank you for your interest, we’ll send you one of the five picks — absolutely free!

Grab your FREE Energy recommendation now

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 assessed. Consider taking independent financial advice.

Gordon Best has no position in any of the shares mentioned. The Motley Fool UK has recommended Diageo Plc. 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

Hand of person putting wood cube block with word VALUE on wooden table
Investing Articles

Around a 1-year high, is there enough value left in Next’s share price to make it worth me buying?

Next’s share price has risen a lot in eight months, but there could still be a lot of value left…

Read more »

Group of young friends toasting each other with beers in a pub
Investing Articles

OMG DYOR but IMO this ‘cool’ FTSE 100 stock offers bangin’ VFM!

Despite being one of the least trendy 50-somethings around, our writer considers how Gen Z could help push this FTSE…

Read more »

Investing Articles

2 cheap FTSE 100 and FTSE 250 growth stocks to consider as stock markets sink

I think these Footsie and FTSE 250 growth shares could be very shrewd buys to consider in the current climate.…

Read more »

Investing Articles

3 shares I’ve bought in the 2025 stock market sell-off

The stock market has experienced a lot of turbulence in recent weeks. Edward Sheldon has been taking advantage and buying…

Read more »

Investing Articles

Investors considering HSBC shares could aim for £8,453 a year in passive income from just £5 a day!

A relatively small daily investment in HSBC shares over several years can produce an extraordinary level of annual passive income…

Read more »

Investing Articles

The Rolls-Royce share price has fallen! Is this the moment investors have been waiting for?

Even the Rolls-Royce share price can't escape current stock market volatility, falling slightly over the last week. Should investors consider…

Read more »

Modern suburban family houses with car on driveway
Investing Articles

Down 59% from its 12-month highs, is this FTSE 250 stock too cheap to ignore?

Shares in FTSE 250 housebuilder Vistry are almost certainly too cheap to ignore. But are they discounted enough to offset…

Read more »

Young Asian woman with head in hands at her desk
Investing Articles

As the S&P 500 struggles to recover, here’s what Warren Buffett’s doing

The S&P 500 is fighting to regain its February highs amid ongoing trade tariff uncertainty. Our writer looks to the…

Read more »