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Could the crisis for Diageo (LSE: DGE) shares be over? That there is a crisis is hard to contest. The share price has plunged 57% since 2021 on the back of concerns about the imminent decline and fall of alcohol consumption across the world.
Interestingly, the fall has been mostly due to a drop in valuation rather than earnings. Sales are still largely stable, yet the price-to-earnings ratio has halved. That means it’s not the income statement that is cause for concern (yet), but a change in investor sentiment. This makes the recent news on alcohol all the more interesting…
So what’s the news? Basically, Waitrose is seeing evidence that folks are drinking more. Its January reporting showed “softening” in the Dry January trend. The month is being jokingly called ‘Damp January’ instead.
The headline statistic is a reversal in sales for the first month of the year. In January 2022, the sales of alcohol were 42% lower than in the months around it. In January 2026, the figure is now 25%. That’s nearly half the impact of Dry January wiped out.
The majority of the shift happened after the 12th – or ‘Damp Monday’ as it has been referred to. This could be a sign that it’s simply folks taking a break after some overexuberant Christmas and New Year festivities.
Zooming out
Is this a sea change for Diageo then? Let’s zoom out a little. This is a snapshot of sales across one largeish UK supermarket. I expect we’ll need to see plenty more signs of a rebound before the stock comes close to its previous valuation.
If these are the first green shoots of recovery though, Diageo shares look like a bargain. This is a company with a first-rate economic moat. Well-known brands like Tanqueray, Johnnie Walker, and Smirnoff offer a huge competitive advantage. The firm’s beer Guinness is so valuable that it’s being rumoured to be spun off into a £8bn company all by itself!
And with the shares down over 50% from five years ago, this could be a time to buy in on the cheap. The forward price-to-earnings-ratio of around 14 is about half its value from a few years ago. And this is a company that is forecast to grow revenue and earnings for the next two years.
My own opinion? Alcohol has been part of many human cultures for a very long time. Jugs of beer were mentioned numerous times on the Sumerian cuneiform tablets on which the epic poem of Gilgamesh was written! It’s going to take an almighty shift for alcohol consumption to lower significantly and permanently. For that reason, I wouldn’t be surprised if the mood changes on Diageo sooner or later. I’d say the stock is worth considering.
