Last year was undoubtedly one that owners of Diageo (LSE: DGE) shares will want to forget. But things haven’t exactly improved in 2026. Quite the opposite.
As I type, the price has fallen a little over 10% since the beginning of the year. And that’s after taking into account the relief rally we’ve seen since a ceasefire between the US and Iran was announced.
With a bog-standard FTSE 100 tracker up almost 7%, I don’t blame existing owners of the battered brewer from feeling rather hard done by.
Why Diageo shares remain unpopular
I think there could be a few reasons for this ongoing negative momentum.
First, there’s the fact that new CEO Dave Lewis is still settling in. Four months is simply not long enough to turn a juggernaut like Diageo around. Yes, a stock can sometimes ‘bounce’ on the belief that a new dawn is coming but this is usually temporary if nothing has changed to the business plan. And so far, nothing really has. February’s interim numbers were even worse than expected.
One thing that Lewis has done, however, is cut the dividend. To be fair, this was always on the cards. When the chips are down, those distributions are often the first to go. But it’s definitely not something investors would have cheered.
On top of this, the more long-term concerns remain. The popularity of weight-loss drugs shows no signs of slowing down. The growing obsession with fitness among younger generations – while no bad thing in itself – also means that many are spurning alcohol in favour of gym memberships.
The prospect of a rise in inflation as a result of the conflict in the Middle East was never going to improve sentiment either, especially as the company already has a hefty amount of debt on its books.
Better times ahead?
Taking the above into account, it’s reasonable to think Diageo shares will continue falling from here. But I’m also not convinced it’s nailed on.
By far the most compelling reason to at least consider investing today is the valuation. A price-to-earnings (P/E) ratio of 12 for the current financial year (ending in June) is already seriously low, especially for a company with a bumper portfolio of brands and global reach.
When expectations are on the floor, it’s remarkable how even the slightest bit of good news can bring out the buyers. Perhaps this might come mid-May when the firm is down to release its next statement on trading. Regardless, the forthcoming World Cup surely won’t be bad for business, especially if the weather behaves.
Get your wallet out, Dave!
Notwithstanding this, I would like to see a bit of director buying. To me, there’s nothing more encouraging than seeing those who know the company better than anyone else backing it with their own cash. So far into the new leader’s tenure, there’s been very little.
There is, of course, no guarantee that any company will recapture its former glory. This is why spreading money around the market is so important. But it’s telling that Tesco‘s share price also continued falling when Lewis took over in 2014 before stabilising and then rising.
I still reckon we could see the same thing happen with Diageo shares.
