You have to go all the way back to January 2012 to find Diageo (LSE:DGE) shares trading as low as they are today. Back then, the UK was gearing up for the Queen’s Diamond Jubilee and the London Olympics. And Britain’s national debt topped £1trn for the first time.
Fast forward to today, Britain’s debt has been reduced and the economy is booming. Only kidding! The accumulated borrowing is expected to hit nearly £3trn this year, with more now being spent annually on interest payments than the entire defence budget.
Consequently, business taxes are high and pubs are closing at record levels (bar group Revolution went bust in January). The entire hospitality sector is struggling, while inflation and higher interest rates have ravaged consumer spending worldwide.
Meanwhile, more young people are going to the gym to see friends than pricey UK pubs, as alcohol-free socialising takes off. According to research from Mintel cited by the BBC, a little over “half of 18 to 24-year-olds had gone to a gym more than once in the month to July 2025, compared with 42% who went to a pub for drinks more than once in the same period”.
All this before we even get onto US tariffs and GLP-1 weight-loss drugs, which are said to reduce cravings for a tipple or two. This forms the backdrop to Diageo’s share price collapse, which has accelerated in the past few weeks.
In fact, anyone who went bottom-fishing five weeks ago would now have just £5,750 from a £7,500 investment.
Glass half empty
There have been two events within the past five weeks that have inflicted more harm on Diageo stock. The first was the Iran conflict, which is now expected to result in even higher energy and food prices (and therefore interest rates).
Needless to say, this isn’t great for the FTSE 100 spirits giant. It’s not something I saw coming at the start of 2026, when the stock was starting to mount a comeback.
The second piece of news was the firm’s interim results for the six months to 31 December, released on 25 February. Here, we learned that the dividend would be halved to shore up cash as sales fell by 4% to $10.46bn.
Full-year organic net sales are expected to fall 2-3%, as weakness in China and North America persists. Meanwhile, the balance sheet needs attention, with significant net debt of $21.7bn.
Glass half full
As bleak as all this appears, I still think Diageo is worth considering. In the first half, Guinness delivered organic net sales growth of 10.9%, with growth in all regions apart from Asia Pacific.
New management also plans to boost its mass market portfolio to drive volume growth. One popular category is ready-to-drink (RTD), including Smirnoff ICE and Gordon’s Gin & Tonic cans. The latter is my go-to drink outside of bars nowadays.
Many younger Gen Z drinkers prefer lower-cost RTD cans for festivals rather than full £20+ bottles. Diageo is underrepresented in this category worldwide. It could also increase its zero-alcohol portfolio.
Even after the dividend cut, the stock is offering a decent forecast yield of about 3.7%. And the forward price-to-earnings ratio is 11.5, which looks cheap.
While the stock’s performance has been shocking, I continue to see Diageo as a strong future turnaround candidate.
