I think it’s fair to say that Diageo (LSE:DGE), the FTSE 100 stalwart, is currently producing one of the coolest drinks around. TBH (to be honest), I’m not a fan of Guinness. But millions of people are.
Ironically, given that the iconic drink’s an old-fashioned stout that’s been around since 1759, its Generation Z that’s making it popular. Thanks to a clever marketing campaign, and the emergence of so-called ‘Guinnfluencers’, sales have gone through the roof and the company’s been struggling to keep up with demand.
Apparently, celebrities such as Lewis Capaldi and Jason Momoa (who?) have played their part in making Guinness trendy. And I’m told ‘Splitting the G’ (no idea) has become something of a social media phenomenon.
Towards the end of 2024, the drink was so popular that keg sales were restricted in British pubs. And I’m sure St Patrick’s Day, the Cheltenham Festival and Six Nations rugby, have helped this trend continue into 2025.
But despite all this hype, the company’s most recent trading update was very gloomy. And Diageo’s share price has fallen 19% since the start of the year.
Drowning its sorrows
Although Guinness is doing well, many of Diageo’s other brands are struggling. For example, during the six months ended 31 December (H1 FY25), sales of gin and vodka were down 11% and 10% respectively, compared to H1 FY24.
Overall, Diageo reported falling sales volumes (-1%), revenue (-1%), operating profit (-5%) and earnings per share (-12%), compared to the same period in 2023.
At least its net debt was also down, although at 3.1 times EBITDA (earnings before interest, tax, depreciation and amortisation), it remains above the group’s target range of 2.5-3.
Ominously, the accompanying press release said: “Medium-term guidance has been removed due to the current macroeconomic and geopolitical uncertainty in many of our key markets impacting the pace of recovery”.
Part of this uncertainty is due to President Trump’s on-off approach to tariffs (currently on). It’s hard to keep up but, at the moment, it looks as though Diageo will be affected. Of particular concern, it has factories in Mexico and Canada.
In good spirits
However, I believe there could be an opportunity to consider here. The stock’s price-to-earnings ratio is now around 15. Only three years ago, it was close to 25. If it was valued on the same basis today, its share price would be over 60% higher. By historical standards, this suggests the stock offers great VFM (value for money).
In addition, the stock’s now yielding 3.9%. Although there are no guarantees when it comes to dividends, at the moment it remains in the top third of FTSE 100 yielders.
Of course, when it comes to investing, it’s important to DYOR (do your own research).
However, IMO (in my opinion), I think the recent pullback in Diageo’s share price could make it an ideal stock for long-term investors to consider adding to their portfolios. I see no reason why the group couldn’t apply the Guinness blueprint to some of its other brands.
Having said that, I suspect there will be a period of volatility before Trump realises that a global trade war doesn’t benefit anyone. And if I’m right, economic growth – and alcohol sales – could then start to pick up again.
TTYL (talk to you later)
XOXO (hugs and kisses)
