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The Diageo (LSE: DGE) share price had a miserable 2025. The FTSE 100 spirits giant plunged 35%, the second-worst performer on the entire index. It’s now down 55% over three years. When a stock slumps so spectacularly that even the most bullish investor takes fright, I’m tempted.
I’ve been averaging down on Diageo to little avail so far, as the shares keep falling. But now I think it’s been overdone. People still drink alcohol, don’t they? It’s New Year’s Day, for crying out loud. Half the world has a hangover this morning. So could Diageo really wow the investment world and double in 2026?
FTSE 100 recovery opportunity
Shares don’t climb in a straight line. Even the best have bad runs. Diageo has had its ups and downs since the millennium, but this latest setback is on a different scale. Its shares are back to 2012 levels.
Yet the more I catalogue the misery, the more tempted I become. Consumer stocks tend to be cyclical, so isn’t it better to buy them at the bottom? With a price-to-earnings ratio of 13.5, Diageo’s valuation has almost halved since its glory growth years, while the trailing dividend yield has more than doubled, from around 2% to almost 5%. Earnings per share are forecast to rise 75% by 2028
And it’s not exactly a basket case. The company owns powerhouse brands including Guinness, Baileys, Tanqueray and Smirnoff, and sold $20.2bn of drink in full-year 2025. Sales slipped just 0.1%.
That said, the damage can’t be ignored. Reported operating profit plunged 27.8% to $4.3bn. Some of that hit came from one-offs, including major restructuring charges, impairment costs and currency headwinds. But there are structural threats too.
US tariffs have hit its Mexican tequila and Canadian whisky imports, and there’s plenty of evidence some people are drinking less. And not just Gen Z, as older people get more health conscious. Alcohol consumption in Britain has fallen by more than 25% over the last two decades, new figures show, to record lows. That’s great for public health, less so for Diageo’s share price.
Dividends and potential growth
Yet there’s still money to be made in a shrinking market. Smoking rates collapsed too, and tobacco stocks have been among the most rewarding investments of the millennium. Big tobacco has done this by using their strong brands to capture more market share. When it comes to brands, Diageo is already there.
So what do the brokers say? The 21 analysts offering one-year share price forecasts produce a median target of 2,121p. If correct (always a big if) that’s a rise of more than 30% in 2026. With the dividend, total returns might hit 35%. That’s strong stuff but falls well short of a double.
Even the most optimistic forecast, 2,691p, implies a 66% increase. Impressive perhaps, but still not 100%.
There’s also fresh leadership. Dave Lewis, the man who orchestrated Tesco’s turnaround, takes charge from today. He won’t hang around.
Diageo shares may not rise at all. Consumers are short of cash, weight loss drugs could wean more off booze, key markets from the US to China are struggling. But for investors who like buying quality companies that have fallen on hard times and are happy to wait, I think Diageo is well worth considering. Just don’t expect it to double this year. Give it time.
