Is the Diageo share price facing a lost decade?

The Diageo share price is down around a fifth over the past five years. Our writer sees some grounds for concern. As an investor, will he keep the faith?

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For many years, I was enthusiastic about the investment case for brewer and distiller Diageo (LSE: DGE) – but not the share price. Too many other investors seemed to share my enthusiasm for the company, keeping the price above what I thought was an attractive buying level.

Then, the Diageo share price fell to what I thought was a decent point to buy – so I did.

Since then? It has basically kept falling. Sure it has moved about, but the long-term trend is not good. Over a year, down 15%. Over five years, down 19%.

Should you invest £1,000 in Diageo 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 Diageo made the list?

See the 6 stocks

Created with Highcharts 11.4.3Diageo Plc PriceZoom1M3M6MYTD1Y5Y10YALLwww.fool.co.uk

As an investor, I see the value of trying to understand why other investors take the opposite view to me.

So far I have seen a lower Diageo share price as a temporary setback. But now I am wondering, might we be facing a lost decade?

Long-term underperformance

That might sound far-fetched, but bear in mind that the share is already significantly below where it was five years ago. In fact, it now stands where it did back in 2017. So it is not far off a lost decade already.

It does have a dividend and indeed that has grown annually for over three decades. The 3.3% yield looks attractive to me, although it is slightly below the average of Diageo’s FTSE 100 peers. And given the inflation we have seen over recent years, in real terms, Diageo has been a dog of late.

Seven or eight years in, can I write this off as a blip? Or am I kidding myself about what is really going on here?

Big challenges and no easy answers

The short-term explanation for Diageo’s woes has been pretty straightforward. People were boozing away during the pandemic lockdowns but things are on more of a normal footing now and economic challenges in Latin America have hurt sales there.

Stepping back, though, I see other warning signs of a potential step change in business expectations. Younger generations are drinking less alcohol than their parents and grandparents did. Beer sales are in long-term decline, while demand for pricy spirits is being buffeted by economic weakness in key markets.

As if that was not bad enough, recent reports of supply challenges for Guinness in England have got me scratching my head. I have not witnessed them first hand and when ordering a pint of the dark stuff at a pub in Inverness last month, the barman said supply was as normal.

But can it really be that Diageo has supply chain challenges in delivering a drink it (or its forebears) have been brewing for over 260 years? That hardly inspires confidence in management.

I’m getting nervous – and curious

Still, I am a long-term investor.

With over 8,700 years left on Guinness’ lease at its St. James’s Gate brewery in Dublin, that is just as well!

Diageo remains solidly profitable. It has expanded into non-alcoholic drinks such as Seedlip to try and meet shifting consumer demands. Its unique premium brands and production sites give it a strong competitive advantage.

On current form, we may indeed be seven or eight years into a lost decade for the Diageo share price. Over time, though, I believe its value will out – so I plan to hold my shares.

Should you invest £1,000 in Diageo 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 Diageo made the list?

See the 6 stocks

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.

C Ruane 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.

Like buying £1 for 51p

This seems ridiculous, but we almost never see shares looking this cheap. Yet this recent ‘Best Buy Now’ has a price/book ratio of 0.51. In plain English, this means that investors effectively get in on a business that holds £1 of assets for every 51p they invest!

Of course, this is the stock market where money is always at risk — these valuations can change and there are no guarantees. But some risks are a LOT more interesting than others, and at The Motley Fool we believe this company is amongst them.

What’s more, it currently boasts a stellar dividend yield of around 8.5%, and right now it’s possible for investors to jump aboard at near-historic lows. Want to get the name for yourself?

See the full investment case

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