Shares in Diageo (LSE: DGE) (NYSE: DEO.US) have had a rather disappointing year. Indeed, they have lagged the FTSE 100 by a considerable amount and are currently down over 9% during the last 12 months, while the FTSE 100 is up 3% over the same time period.
Does the share price weakness now mean that Diageo is worth buying? Moreover, is it still a super growth stock despite shares falling in value over the last year?
Strong Growth Prospects?
Although questions have arisen in 2014 regarding the sustainability of the emerging market growth story, the developing world looks set to experience higher growth rates than the developed world. As a result, it seems to be the place to be for consumer goods companies such as Diageo. So, while earnings per share (EPS) for Diageo are forecast to fall in the current financial year by 2%, the long-term story still looks strong.
Indeed, 2014 looks set to be something of a blip for Diageo, as the company has been able to deliver three years of double-digit EPS growth prior to the current year. Moreover, it is forecast to return to strong growth in 2015, when EPS is expected to increase by 10%. This is well above the FTSE 100’s forecast growth rate of mid-single digits and shows that Diageo, although not immune to disappointing performance, has a degree of resilience that enables it to bounce back.
Good Value?
As mentioned, shares have been weak over the last year, however Diageo is still not exactly cheap. It trades on a price to earnings (P/E) ratio of 17.7, which is considerably higher than the FTSE 100’s P/E of 13.5 and shows that, while Diageo offers impressive long-term growth prospects, investors are being required to pay for them.
That said, Diageo’s portfolio of brands is very strong, diverse and is spread around the world. So, while emerging markets have disappointed slightly in the current year, exposure elsewhere picks up the slack. This provides Diageo with a consistency that few companies enjoy and is, in the eyes of many investors, well-worth paying for.
Looking Ahead
So, while Diageo is not particularly cheap, it does have great long-term growth prospects. Certainly, this year has been disappointing but Diageo looks set to bounce back and could yet have a strong 2014 as a super growth stock.
