Since end-2021, the Diageo (LSE: DGE) share price has been one big hangover for the global drinks giant’s shareholders. Since the post-Covid party boom of 2021, this FTSE 100 share has fallen almost relentlessly. But could there finally be light at the end of the tunnel?
Diageo’s descent
On New Year’s Eve 2021, Diageo stock closed at 4,036p — its highest closing price. Alas, the share price has been sickly ever since. On 23 March, it hit a 52-week low of 1,350p, down two-thirds (-66.6%) from the record high.
At this point, many shareholders would have been despairing. I know, as I’m in this group. My family portfolio bought this stock for 2,806.6p a share in January 2024. When the shares bottomed out on 23 March (down 51.9% from our entry price), I was considering cutting our losses.
However, things may be finally looking up for Diageo’s owners. On Thursday, 7 May, the shares closed at 1,534.2p, valuing the group at £34.9bn. That’s 13.6% above their 2026 low, with the stock jumping after the third-quarter statement released on Wednesday, 6 May.
Turning point?
With the shares down 29.1% over one year and 53.3% over five (excluding cash dividends), Diageo’s owners are desperate for good news. Fortunately, the latest trading figures offered some glimmers of hope.
With the FIFA World Cup running from 11 June to 19 July, wholesale customers have started stocking up on booze for pubs, clubs, and bars. Group sales rose by 0.3%, far ahead of the 2.3% decline forecast for the three months to April. If this early turnaround continues, it would be a solid start for new CEO Sir Dave ‘Drastic’ Lewis.
While Latin American sales leapt by 16.2%, sales dived by 9.4% in the key US market, with spirits exceptionally weak. In contrast, European sales rose by 8.8%, with pints of popular stout Guinness leading the way.
In order to invest in growing brands and markets, Lewis announced a cut to Diageo’s dividend in late February. The turnaround specialist also plans to lower prices and bring down the group’s net debt.
Cheap shots?
Currently, Diageo shares trade on 19.6 times historic earnings and offer a trailing dividend yield of 3.9% a year. But this cash yield will drop again when the reduced final dividend is revealed. While this stock doesn’t look wildly overpriced, it’s also not an obvious bargain buy.
For me, this Footsie share appears to be a binary bet — either a recovery play or a value trap. If the world’s biggest football tournament goes well, then sales could enjoy a strong boost. Personally, I’d like to see sales and margins rebounding with costs kept firmly under control.
In summary, there’ve been no major shocks in Sir Dave Lewis’ first four months in charge. For now, I’m happy to give him a full year or more to turn this tanker around. That said, if Diageo continues to struggle, then 2026 may be my family’s last year of ownership of this once-proud British business!
