A sharp fall last week means Diageo‘s (LSE:DGE) share price is basically back to where it was at the start of 2026. The FTSE 100 company’s shattering trading update on Wednesday (25 February) prompted a fresh pullback. It means that over 12 months, it’s down a staggering 27%.
Trading at £15.96 each, Diageo shares are also 61% below the record peaks of £41.10 struck in January 2022. The question is, could now be a good time for daring investors to consider buying this battered stock? Let’s discuss.
Tough times
Diageo’s half-year update was quite the bag of horrors for investors, sending its share price 15% lower on the day. Falling sales volumes and prices pulled organic net sales and operating profit 2.8% lower between July and December.
This led the company to cut sales and profits forecasts yet again — net sales are now tipped to fall between 2% and 3% over the 12 months to June. With cash flows also falling, Diageo decided to slash the interim dividend by 51% to improve its financial flexibility.
Things have clearly been pretty grim as key markets like the US and China have struggled. And the drinks giant could remain under pressure if consumers keep trimming spending, and drinkers in key Western markets consume less or switch to non-alcoholic beverages.
Darkest before the dawn?
That said, could the Guinness manufacturer now be at its lowest point? This is also a possibility in my view, as it has several potential catalysts that could drive a recovery.
With new CEO Dave Lewis, the company has someone prepared to get tough to get Diageo firing again. He’s already signalled his intent by slashing the dividend. This wasn’t a popular move, but one that’s arguably necessary to kickstart a turnaround.
Other things to expect are a U-turn on Diageo’s failed premiumisation strategy, including the dumping of scores of underperforming brands and sweeping cost-cutting measures to boost margins and strengthen cash flows.
There are many similarities between Diageo’s problems today and the ones Lewis inherited as head of Tesco: huge competition, a company that had strayed from its core strengths, and a stock that had lost its lustre with both customers and investors.
Tesco’s share price is now three times more valuable than they were when Lewis took over in 2014, underlining the significance and long-term impact of his time in charge. Given his successful stint at Unilever too (another consumer goods like Diageo), I’m optimistic ‘Drastic Dave’ can ignite a recovery.
Are Diageo shares a potential buy?
So should investors consider buying Diageo shares following its fresh price plunge? I believe so, given how low the company’s valuation is today. The company’s forward price-to-earnings (P/E) ratio sits at 14 times, well below the 10-year average around 21.
In my view, the long-term outlook for the company remains robust. It has a packed portfolio of beloved drinks brands, and a great record of innovation to help it adapt to changing tastes. With massive structural opportunities in emerging markets, I think Diageo’s share price could surge from current levels.
