At the start of 2025, the Diageo (LSE:DGE) share price wasn’t exactly in terrific shape. Skip ahead to today, and the beverages business has seen its market-cap shrink even further.
So far, the FTSE 100 stock’s down 31% since January. And zooming out reveals it’s fallen by almost 60% since its 2022 peak. Just to put this into perspective, Diageo is now trading at the same level it was over 10 years ago – an entire decade of returns has essentially been wiped out.
With that in mind, it’s easy to see why some investors are giving up hope. But as it turns out, this nightmare could soon be over. Why? Because the company just recently made an announcement that could trigger a massive and lucrative recovery.
Bring in the specialist
Under the leadership of Debra Crew, the business has made solid progress in terms of improving operational efficiency since 2023. Being a Diageo veteran has clearly helped on this front. Yet, better cost controls can only do so much. And with Crew struggling to spark fresh organic growth, investors understandably lost faith.
The result of all this was Crew stepping down as CEO after only two years in the corner office, followed by a hunt for a new replacement. And last month, her successor was announced – Sir Dave Lewis.
As a quick introduction, Lewis has extensive experience leading large FTSE retail operations, including at Tesco, Unilever. But more importantly, he specialises in the one thing Diageo desperately needs right now – turnarounds.
His previous success stories have involved drastic operational overhauls rather than Crew’s approach to optimise around the edges. And while he has yet to lay out his strategy for Diageo, I think it’s likely investors will be seeing some bold decisions emerge once he takes over in January.
A hidden buying opportunity?
Buying Diageo shares today is very much an investment in Lewis himself. And it’s important to recognise that even with an experienced turnaround specialist, there nonetheless remains significant execution risk.
Even if his tactics prove effective, the company’s still navigating a rather unfavourable trading environment with discretionary spending on the decline across many regions. And this is certainly not helped by countries like the UK increasing alcohol duty next year.
In other words, even with Lewis at the helm, Diageo’s far from a risk-free investment right now. And while its portfolio of premium brands and highly cash-generative business model do provide a good amount of financial wiggle room, a continued lack of growth doesn’t bode well for a share price recovery.
Having said that, with Diageo shares trading at a forward price-to-earnings ratio of just 11, the market continues to be exceptionally pessimistic.
This signals that the bar for improvement is now very low. And as such, the risk-to-potential-reward ratio for this business looks quite attractive, in my eyes. That’s why I think opportunistic investors may want to mull this recovery opportunity.
