The invention of Ozempic has been a disaster for the Diageo (LSE: DGE) share price. The weight loss drug, also known by its generic name semaglutide or sold as Wegovy, has the peculiar side effect of causing users to drink less. Reasons given include worse hangovers and not getting the same ‘buzz’.
As a Diageo shareholder, I’m watching the situation with the Guinness, Smirnoff, and Tanqueray manufacturer with interest. With 27% of British adults being obese and 64% being overweight or obese, use of these anti-obesity treatments might become more and more widespread.
Does that mean we are inching inexorably toward a future overflowing with skinny teetotallers and with a cratered Diageo share price? Or have the rumours of the demise of alcohol been greatly exaggerated? Let’s explore.
Problems
While Ozempic and its counterparts burst onto the scene in 2017, the drugs only gained widespread adoption a few years after. The Diageo share price maps more or less neatly onto their proliferation. Let’s examine the pre-Ozempic high of Diageo shares to see how bad the fall is.
The shares reached an all-time high of £40.36 on New Year’s Eve of 2021, a time when weight loss drugs were still the preserve of dodgy ads on shady websites. The shares slowly fell to £18.93 on the day that I write this, a staggering fall of 53%.
While other issues have plagued the alcohol beverage multinational, notably falling consumption by Gen Z and supply chain issues in Latin America, a £10,000 stake bought at the top would have fallen to £4,690 today. To add insult to injury, the FTSE 100 has been soaring over the same time period. A £10,000 stake in a Footsie index fund would have swelled to £12,634. I excluded dividends from these calculations, by the way.
Holding on
If there’s a lesson to be learned here, it’s that sometimes you have to chalk it up to the game. In other words, these things happen in investing. Things come out of the blue and make a once very attractive stock look quite a bit less attractive.
Could I have predicted the decline in alcohol consumption among the latest batch of young adults? Probably not. And I’m not in the habit of making investment decisions based on the invention of revolutionary new drugs either. I bought Diageo because it looked like a great stock.
On fundamentals, it still looks like a great stock in many respects. Guinness is one of the most popular beers going. And its zero alcohol version is similarly loved among the no-drinking and ‘sober curious’ crowds. A forward price-to-earnings ratio of just 14 looks very reasonable too. It’s for these reasons that I plan to hold onto my shares in spite of my despair at the worsening outlook.
