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Diageo‘s (LSE:DGE) share price been one of the FTSE 100‘s worst performers over the last year. It begs the question: how much cash have investors like myself lost by holding the Captain Morgan maker?
Since 5 February, 2025, Diageo shares have tumbled 25.7% in value. Though this drop has increased the dividend yield above historical norms, to 4.5%, the drinks giant has delivered a total negative return of 21.2%. It means someone investing £10,000 a year ago would now have just £7,880 sitting in their investment account.
To put that into perspective, someone who put that £10k in a FTSE 100 tracker fund instead would have £12,300. The question is, will things get worse for Diageo investors? Or is the company about to stage a stunning recovery?
23.8% total return?
What I’m personally encouraged by is the super-low valuation its shares currently command. This could be the bedrock for a sharp price recovery if global investors keep targeting undervalued companies.
At £17.32 per share, Diageo shares trade on a forward price-to-earnings (P/E) ratio of 14.5 times. That’s miles below the 10-year average of 21. Furthermore, its dividend yield is pumped up to 4.6%, well ahead of the 2.7% long-term average.
But do City analysts share my optimistic take? Largely speaking they do — 21 currently have ratings of the stock. Their average 12-month share target is £20.65, up a whopping 19.2% from current levels.
With that dividend yield baked in, it suggests Diageo shares could deliver a total return of 23.8%. At this rate, a £10,000 investment today could turn into £12,380 by this time next year.
What could go right?
For Diageo’s share price to rebound, it’s likely that news surrounding the business will have to pick up significantly. Market confidence in the company remains at rock bottom, after all.
But what are the chances of this happening? It may take a silver bullet to spark a sudden price jump, but the appointment of a recovery specialist as CEO could be just that. Sir Dave Lewis laid the foundations for Tesco‘s recovery following multiple crises in the 2010s. Before that, he masterminded a turnaround at Unilever‘s ailing UK business.
Lewis is expected to get the ball rolling at Diageo with extensive cost-cutting and the divestment of the firm’s many underperforming brands. If he gets off to a good start and trading performance improves, sentiment towards the FTSE firm may spike.
There are also other reasons to be confident, in my view. Drinker spending could improve sharply as interest rates fall, reinvigorating sales growth. Investors can also expect further progress in key growth categories like non-alcoholic beverages, with new products likely to add to its highly successful Guinness 0.0 line.
Are Diageo shares a Buy?
Of course Diageo still faces lingering pressures at the start of 2026. It’ll have to adapt fast to keep pace with changing consumer tastes, and the impact of the weight loss jab explosion on demand. Any sales recovery could also falter if economic conditions worsen and consumer spending remains subdued.
But boosted by its heavyweight portfolio of drinks labels, I’m confident it can begin to begin to bounce back from this year. And with Diageo’s share price at current bargain levels, I think it’s a top FTSE 100 stock to consider buying.
