Diageo (LSE: DGE) shares were tumbling long before Donald Trump’s trade war rattled markets, but the uncertainty hasn’t helped one bit.
Mexican tequila and Canadian whisky exports to the States would both take a beating, if those tariffs come through. The furore couldn’t come at a worse time for the global drinks giant.
One of the FTSE 100’s proudest blue-chips has taken a right old beating. The Diageo share price is now down nearly 30% over the past year, and a hefty 50% over three.
Can this FTSE 100 flop fight back?
The problems run deep. The cost-of-living crisis has left shoppers reluctant to splash out on premium drinks.
Diageo’s push into the premium end of the market has stumbled as a result, and stocking issues in key regions, especially Latin America, have only made matters worse.
I’ve tried to see the brighter side, averaging down on the stock several times, but each time the shares have sunk lower. So has my mood. Well they do say alcohol is a depressant.
Sure, Guinness is the height of fashion but there’s a growing concern that younger generations simply aren’t drinking the way their parents did.
That casts a long shadow over Diageo’s long-term story. Once seen as a solid, defensive pick, the company now looks anything but dependable.
In February, Diageo reported that net sales had dipped 0.6% to $10.9bn, and operating profit fell 4.9% to $3.16bn, with currency headwinds and shrinking margins both playing a role.
While there were encouraging signs in North America, boosted by Don Julio and Crown Royal, that’s all up in the air. Tariffs appear to have scuppered hopes of building momentum in the second half of the year.
At least the valuation has come down to earth. Diageo now trades on a price-to-earnings ratio below 15, which feels cheap given where it used to sit.
Rising yield, but is it good value?
The dividend yield is up to 3.86%, and forecasts suggest it could hit 4% in 2025. So, what might that mean for returns?
The 22 analysts covering the stock have a median one-year target of 2,547p. If they’re right, that’s a potential 24% gain from today’s price of 2,063p.
Add in the yield, and investors could be looking at a total return of almost 28%. I’d love that to happen, but can’t see it today. Forecasts feel shakier than ever right now.
They say it’s darkest before the dawn, and maybe better days lie ahead. But any investor considering Diageo today must look past the share price slide and ask if they truly believe in the company’s future. The P/E ratio may be lower, but that doesn’t make it cheap.
Of the 25 analysts who’ve issued a rating recently, 10 labelled Diageo a Strong Buy, with another three rating it a Buy. Three said Hold. Only three said Sell. Their glass is half full, but after the losses I’ve suffered, mine feels half empty. I believe investors’ patience could be tested for a long while yet.
Any investor considering this stock must be ready to commit for the long haul, or sit this one out.
