As the Diageo share price falls another 6% in 2025, what should investors do?

The rise of GLP-1 drugs is sending the Diageo share price lower. But Stephen Wright thinks investors should try to avoid getting swept along by the fear.

| More on:
Young Asian woman with head in hands at her desk

Image source: Getty Images

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.

The Diageo (LSE:DGE) share price just keeps going lower at the moment. It’s as if someone has told it the story of Jules Verne’s Journey to the Centre of the Earth and the stock thought “sounds like a plan…”.

One of the biggest concerns is Glucagon-like Peptide-1 (GLP-1) drugs that help reverse the effects of diabetes and help combat obesity. And unlike a number of purported innovations – they actually work. 

It turns out though, that GLP-1 drugs aren’t just good for helping people lose weight. They’re also doing a decent job of knocking pounds off the FTSE 100 drinks company’s market cap

As a result, Terry Smith has been selling his stake in Diageo, citing concerns about the impact of GLP-1 drugs on the drinks industry as a whole. But is this all just a big overreaction?

How big is the problem?

Gauging the scale of the threat precisely is impossible, but investors can give themselves a rough idea. In 2024, Diageo generated 30% of its sales from the US, where the obesity rate is around 40%. 

GLP-1 drugs are expensive and it looks as though only 50% of the people that might be eligible for them will be able to access them. And there’s a further unknown about how many will stick with it.

The effects wear off if the drugs aren’t taken every day. And with potential side-effects including nausea, sickness, and dizziness, there might well be some who find it difficult to keep taking them.

Lastly, there’s an important issue of demographics. While Diageo doesn’t publish demographic data explicitly, market studies indicate that around two-thirds of its customers are male.

That matters because around men only account for around a third of the people currently using GLP-1 drugs for weight loss. Given all this, I think rumours of this company’s demise are greatly exaggerated.

Risks and uncertainties

Based on these numbers, the impact on Diageo’s top line might be fairly limited. In a pretty optimistic scenario, the impact on revenues could be as low as 1.2% – or 4% of US sales. 

There’s a lot behind these numbers for investors to think about. For example, the firm typically earns strong margins in the US so a 1.2% hit to sales might translate into a bigger reduction in profits.

Another issue is whether people on GLP-1s are those who spend more on Diageo’s products. If they do, then losing that part of the customer base might result in a disproportionate reduction in revenues.

All this is to say that no investor should be dismissing the risk of weight-loss drugs entirely when it comes to Diageo shares. And they should absolutely not be counting on the above numbers as accurate.

I think a precise picture of the threat is impossible to construct at the moment. But I don’t think this justifies the sell-off in the stock, which is why I’m still looking to buy Diageo shares right 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.

Stephen Wright has positions in Diageo Plc. 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

Bus waiting in front of the London Stock Exchange on a sunny day.
Investing Articles

2 UK shares that could soar if interest rates sprint lower!

The Bank of England's latest meeting has fed speculation of swingeing interest rate cuts. I think these UK shares could…

Read more »

Shot of a senior man drinking coffee and looking thoughtfully out of a window
Investing Articles

My favourite FTSE dividend stock just jumped 17%! So why am I sad?

This investor has mixed feelings today as a quality dividend stock from the FTSE 250 surged higher in his portfolio.…

Read more »

Investing Articles

Here’s why AstraZeneca stock jumped nearly 6% in the FTSE 100 today

FTSE 100 heavyweight AstraZeneca helped propel the blue-chip index to a record high today. Here's what investors were cheering.

Read more »

Closeup of "interest rates" text in a newspaper
Investing Articles

Interest rates fall again! Here are 3 FTSE dividend growth shares to consider buying

As interest on cash savings becomes increasingly less attractive, Paul Summers has been looking at dividend growth shares for passive…

Read more »

Investing Articles

Up 10% today, I think this FTSE 250 growth share could continue to surge!

Babcock International's flying after upgrading its full-year forecasts. I think the FTSE 250 defence share might just be getting started.

Read more »

Investing Articles

The AstraZeneca share price jumps 5% on today’s strong results – but is it too expensive?

Harvey Jones hails the brilliant long-term performance of the AstraZeneca share price, but wonders whether the FTSE 100's biggest company…

Read more »

Investing Articles

Is this my chance to buy Alphabet shares?

A big step up in AI spending at Google has investors nervous, but has it created an opportunity to buy…

Read more »

Senior woman potting plant in garden at home
Investing Articles

£10k in savings? Here’s how an investor could aim for a monthly second income of £1,200

Mark David Hartley considers how investors could build towards an early retirement plan with a second income from a portfolio…

Read more »