With just hours of 2025 left, I think it’s fair to conclude that holders of Diageo (LSE: DGE) shares have had a year they’ll want to forget.
But just how much damage has been done to the investment case of this one-time FTSE 100 star?
Toxic cocktail
The simple answer to that question is ‘an awful lot’. But it’s worth being clear that Diageo’s woes aren’t of its own making.
The ongoing cost-of-living crisis has seriously impacted sales and profits in key markets such as North America and China. Political developments, such as Trump’s tariffs, have arguably played a role too. Adding to this, younger generations are more into fitness than drinking (or neither).
The advent of weight loss drugs — and the impact these have on the desire to drink — probably wasn’t on Diageo’s bingo card either.
Massive loss
Naturally, those already invested in the stock will be in an unforgiving mood. A 37% crash in the share price in 2025 means Diageo stock now sits at its lowest ebb in almost 14 years. Put another way, a £1,000 investment at the beginning of the year would now be worth around £630.
Sure, dividends have been paid. But these would barely have made a dent in the (paper) loss.
When one considers that the FTSE 100 is up 20% as a whole, that’s got to sting.
New dawn
Since many of Diageo’s woes can’t be resolved quickly, it seems 2026 will be another difficult year.
On the other hand, the drinks giant does have a potential ace up its sleeve in the form of a new CEO. That leader is none other than former Tesco boss Dave Lewis. A few years ago, he managed to put the supermarket back on the straight and narrow after an almighty accounting scandal.
Sure, it’ll take a lot more than just one person to steady the ship. And yes, Diageo’s predicament is wholly different. But ‘Drastic Dave’ didn’t earn his nickname by accident. Expect cost-cutting aplenty. The sale of some of its less pivotal brands might also be on the cards.
Cheap stock
On its own, the appointment of Sir Dave is enough to pique my interest. The current price tag only adds to this.
After its nightmare year, Diageo shares now change hands for just 13 times forecast earnings. A few years ago, investors would have needed to pay around 20 times earnings. This suggests there’s now a decent margin of safety.
The dividend yield is rapidly approaching 5% too, even though that passive income can never be guaranteed.
I’m seriously considering Diageo shares
With little short-selling activity surrounding the stock and a lot of bad news seemingly priced in, I’d be surprised if 2026 is as bad as its 2025.
My inkling — and it really is just that — is that the share price might trade sideways for a while. The market already knows the company is in a sticky spot so it’ll surely take something really nasty to tank Diageo shares from here.
Half-year numbers in February will make for essential reading, even if it might be a ‘kitchen sink’ job in which every last bit of bad news is revealed to clean the decks.
For now, it stays right at the top of my ‘potential buy’ list.
