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I Diageo (LSE: DGE) share price starts in 2025 and ends in 2024 (and 2022 and 2023). Down!
Granted, we’re only two weeks into the New Year, but it’s not a good start. Shares of the premium spirits powerhouse fell 5%. With FTSE 100 The index off to flyer this year, is up almost 4% already and just hit a new record, Diageo shareholders like me are left frustrated again.
What’s going on here? And should I ring a bell and announce a closing time on this stock? Let’s take a look.
Drip-drip of low beat development
There wasn’t a single update that sent the stock down. Instead, there has been a steady stream of bad news and nothing good to counter it.
Last week, for example, we learned why fund manager Terry Smith dumped Diageo shares last year. He lost confidence in the new management team after the creation of alcohol that could not be sold in Latin America, while he feared GLP-1 weight loss drugs such as Govy were going to have a negative impact on the beverage industry.
We suspect that the entire beverage industry is in the early stages of being adversely affected by weight loss drugs. Indeed, it seems that drugs will eventually be used to treat alcoholism as a result of alcoholism.
Terry Smith, Fundsmith Equity Fund’s annual letter to shareholders, 2024
However, Fundsmith’s sales were back in the summer and the market knew about the GLP-1 drug problem for a while. So these are unlikely to be the reasons for the stock’s weakness this year.
Another downside is that India’s criminal investigation agency has alleged that Diageo made suspicious payments to a politician’s company to get rulings in favor of the government. We do not know when this is said to have happened and Diageo has said that it is cooperating with this organization. India is huge and likely to be an important market for its long-term growth, so this news is not welcome.
Earlier this month, US Surgeon General Vivek Murthy called for alcoholic beverages to carry cancer warning labels like cigarettes. It’s not clear whether this will take off, but some analysts fear that liquor firms may be headed in the direction of tobacco stocks — slow growth, declining customer numbers, higher standards, and lower ratings.
Finally, there is the looming threat of President Trump’s tariffs, which could take a bite out of Diageo’s profits. It exports a load of Canadian whiskey and Mexican tequila to America each year. So in the firing line.
Did I throw in the towel?
The stock looks decently priced, trading at 16.5 times FY26 forward earnings (as of July). The forward dividend yield is now approaching 4%, so perhaps there is something to the tobacco stock comparison. They are bought more by income than by any long-term industry growth expectations.
Diageo has to report H1 2025 results in February, and one of the biggest fears is hearing management say those dreaded words: GLP-1. If it says these really have an impact, the stock is likely to be crushed.
Still, I’m holding on to my shares and hoping for a green shoots recovery in the global beverage market, or at least something to hope for. I get enough doom and gloom in the news — I don’t need it in my portfolio!
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