Picture supply: Getty Photos
On the floor, it’s onerous to consider Diageo (LSE: DGE) shares have fallen by 56%. Its flagship model Guinness is likely to be the most well-liked alcoholic drink on the planet. A lot so, some traders are calling for it to be spun off. The Irish black beer model can be anticipated to have a $10bn market cap all by itself.
Is Diageo a one trick pony then? Hardly. With drinks like Smirnoff, Johnnie Walker, and Tanqueray, it has a few of the finest names in vodka, whiskey, and gin respectively. Is it dropping out within the no alcohol race? Doubt it. Guinness 0.0 is among the hottest alcohol-free drinks going.
In my view, it’s onerous to consider the corporate has misplaced half its worth. So, is that this a discount funding within the making? Are Diageo shares an inexpensive purchase under £18?
Altering habits
The first strike towards? Persons are ingesting much less. That is due to a number of elements, together with a generational shift, the results of weight reduction medicine, and people attempting to be a bit more healthy.
The humorous factor is, there was zero impression on operations to date. Income has stayed degree for the final 5 years, as has working earnings! Dividends have grown in that point too. Forecasts for 2026 and 2027 recommend income and earnings will develop in each years, too.
And on account of the falling share worth, the price-to-earnings ratio has fallen. A ahead P/E ratio of simply 14 appears very engaging, under the FTSE 100 common.
That is maybe why analysts are extraordinarily bullish on the inventory, maybe extra so than some other Footsie firm. The typical worth goal over the following 12 months is 29% greater. One analyst is predicting a 50% enhance in share worth over the following yr!
Reversal of fortunes?
In relation to investing, we have to have a look at the downsides too. In Diageo’s case, the foremost draw back is decrease consumption. Of us ingesting much less will imply decrease revenues and certain a decrease share worth.
Whereas Gen Z shifting away from alcohol appears to be thought of a fait accompli amongst many, I’m not so certain that is indicative of a long-term pattern. Humanity’s love affair with fermented drinks stretches again 1000’s of years. It’s a courageous observer who’s assured in predicting its demise.
Among the most up-to-date information paints an fascinating image on this regard, too. A examine made headlines this summer season claiming “Gen Z is not ingesting lower than older generations of customers”. This is because of a change within the final two years. For instance, the share of Gen Z within the US who stated they’ve had a drink within the final six months rose from 46% to 70% between 2023 and 2025.
It’s for these causes that I believe Diageo is among the cheaper-looking shares on the FTSE 100 and value contemplating. I’d not be stunned to see a reversal of fortunes within the years to come back.
