Diageo (LSE:DGE) shares endured another disasterclass in 2025. Though they’ve started the New Year on the front foot, over the last 12 months the FTSE 100 company’s fallen 30% in value.
Yet with the Guinness manufacturer recently trading at its cheapest since 2012, are its shares now worth a tipple? Let’s take a look.
1. Drinkers cutting back
Investors looking for a hot recovery stock for 2026 may end up disappointed. I’m not saying Diageo’s share price won’t rebound sharply this year. But in the current landscape, I think any upturn is more likely to be a slow burn.
Conditions in the alcoholic beverages market remain tough as consumers tighten their purse strings. Whiskey maker Jim Beam will stop production at its main Kentucky site through 2026, it said before Christmas. Heineken also waved goodbye to its chief executive this week after warning in the autumn of lower sales this year.
Diageo cut its own forecasts in November, warning of “flat to slightly down” organic net sales this financial year (to June 2026). More troubling consumer spending data since then suggests revenues may remain under pressure.
2. ‘Drastic Dave’ settles in
But could Diageo’s shares still rise as its new chief executive gets to work? It’s possible, if Sir Dave Lewis takes a firm hand to restructuring the business to cull underperforming brands and reduce costs.
News reports suggest he’s already getting stuck into the task. According to Bloomberg, Lewis is working with Goldman Sachs and UBS to hive off its Chinese assets. This isn’t a massive surprise — poor Chinese white spirit sales was one reason behind November’s disappointing update.
Lewis’ former tenure as Tesco chief between 2014 and 2020 set the foundations for the grocer’s turnaround and impressive share price recovery in recent years. If he achieves the same with his new company, Diageo’s shares could surge from today’s levels.
3. Changing consumer tastes
But is any recovery in danger as broader alcohol consumption in key markets declines? People in the US and Europe are drinking less and less on health grounds. The boom in weight-loss jabs is worsening the problem for drinks manufacturers.
Diageo is bringing out no-alcoholic variants of its heavyweight brands like Gordon’s, Captain Morgan, and Smirnoff to head off this threat. And it’s enjoyed some big success (Guinness 0.0 is selling at double-digit growth rates).
But only time will tell how successful the company’s efforts here will be. In the meantime, it remains highly dependent on sales of its traditional alcoholic drinks.
4. Diageo shares are cheap!
That said, it appears (in my view) that the dangers facing the FTSE company are largely priced in. If news flow around Diageo starts to improve, its low valuation could support a strong share price recovery.
At £16.83 per share, the company trades on a forward price-to-earnings (P/E) ratio of 13.4 times. That’s significantly below the 10-year average of 20.8 times.
In my opinion, Diageo demands serious consideration with its share price at current levels. I already have a sizeable stake in the FTSE 100 company today. If I didn’t, I’d look at buying some shares for my own portfolio.
