Diageo’s (LSE: DGE) share price sits at the intersection of brand prestige and market pragmatism, in my view.
On the one hand, it owns luxury drinks brands including Johnnie Walker, Tanqueray, and Guinness.
On the other, the high cost of living and demographic changes have caused demand to fall for such premium goods in its key markets.
So, the key question now is can it tip the balance of these factors into renewed growth, or will it remain stuck in decline?
2022 and all that
Diageo’s share price has more than halved since January 2022, marking an unbroken bearish trend ever since.
The irony is that its H1 fiscal‑year 2022 results, released at the end of that very month, reflected a robust performance through Covid. Reported net sales rose 15.8% year on year to £8bn, driven by double-digit growth across all operating regions. And reported operating profit surged 22.5% to £2.7bn.
However, then-CEO Ivan Menezes’s comment that he hoped this momentum would continue beyond the pandemic proved ill-founded. As office working resumed, and inflationary pressures grew, discretionary spending on luxury drinks fell away.
This decline was compounded by a generational shift towards no- and low-alcohol drinks. In the UK, for instance, this market segment grew by 47% between 2022 and 2023, outpacing traditional alcohol categories.
This culminated in Diageo’s shock profit warning in November 2023 and disappointing 2024 results, cementing the share price’s woes.
Another shock warning
The malaise deepened in November 2025, when Diageo issued another set of dismal numbers.
In its Q1 fiscal-year 2026 trading statement, it cut full-year sales and operating profit guidance. The former is now expected to be flat or slightly lower than the previous low‑single-digit growth. The latter is now anticipated to be low-to-mid-single-digit growth, from mid‑to-high‑single-digit growth.
These lower forecasts followed flat net sales growth in Q1.
Then-interim CEO, Nik Jhangiani, commented in — hopefully — a mastery of understatement that: “We are not satisfied with our current performance”. However, there were no concrete proposals to effect a turnaround.
It’s a new day, it’s a new Dave
Since then, Diageo has appointed a new CEO, Dave Lewis. Positively, he is widely credited with the huge turnaround in Tesco during his tenure as CEO from 2014 to 2020.
Negatively, Diageo’s problems look less about bloated operations and more about structural demand shifts to me. So, his Tesco playbook may not be enough to turn Diageo around unless paired with brand innovation and growth strategies.
Indeed, last month saw investment banking heavyweight UBS downgrade the stock from Buy to Neutral. It did so specifically citing structural demand weakness in key markets rather than cost bloat.
If…
Despite these myriad risks, if Lewis can effect meaningful change, then Diageo’s defensive qualities at least give him a platform.
Notably, the firm continues to generate strong cash flows. In fiscal-year 2025, it reported net cash flow from operating activities of $4.3bn (£3.23) and $2.7bn in free cash flow, underpinning dividend resilience.
Additionally positive for shareholders are analysts’ forecasts that its dividend yield will rise. Currently, this stands at 4.9% against the present FTSE 100 average of 3.1%. However, forecasts are for 5.1% by 2027.
That said, my eye is on deeply undervalued stocks with very high forecast growth and ultra-high dividends.
