Have you ever sipped a smooth whisky or a frothy pint of Guinness and wondered about the business behind the bottle? I’ve found myself pondering this lately, especially with all the buzz around Diageo’s stock. The drinks giant, known for brands like Johnnie Walker and Smirnoff, has had a wild ride over the past few years. After a brutal 50% drop from its 2022 peak, the company seems to be finding its footing again. But with tariff threats and a shifting consumer landscape, is now the time to jump in as an investor? Let’s break it down.
Diageo’s Rollercoaster Journey: From Peak to Recovery
Diageo’s story over the past five years reads like a drama-filled business novel. The company hit a high of over 4,000p per share in early 2022, only to plummet by more than half. I can’t help but feel for the investors who rode that wave—ouch! The pandemic played a big role, pulling demand forward as people stocked up on their favorite spirits during lockdowns. But as life normalized, sales cooled, and Diageo faced a series of gut punches.
First came the sudden passing of their long-time CEO, Ivan Menezes, in 2023. Then, a surprise profit warning hit due to overstocking issues in Latin America and the Caribbean, where sales tanked by 20%. Add to that the looming threat of U.S. tariffs under a new administration, and it’s no wonder investor confidence took a hit. Yet, despite these challenges, there’s a lot to like about Diageo’s current position.
The Bright Spots: Guinness and Premium Spirits
Let’s talk about Guinness for a second—arguably the crown jewel of Diageo’s portfolio. It’s not just the UK’s favorite beer; it accounts for a whopping 16% of Diageo’s total sales. Over the past six months, organic sales of Guinness jumped 17%, marking four straight years of mid-teens growth. That’s the kind of momentum that gets my attention.
The company’s not stopping there. They’re expanding production capacity at their iconic St James’s Gate brewery in Dublin, which is currently running at 90%. A new brewery set to open in 2027 could boost output by 30%. With only 5% of Europe’s on-trade outlets currently stocking Guinness, there’s massive room for growth. And don’t sleep on Guinness 0.0, their non-alcoholic version, which has already captured 26% of the UK’s non-alcoholic beer market since its 2020 launch.
“Guinness’s growth is a testament to Diageo’s ability to capitalize on enduring brand loyalty.”
– Industry analyst
Beyond Guinness, Diageo’s premium spirits are carving out a strong niche. Brands like Don Julio Tequila, Johnnie Walker Scotch, and Cîroc vodka are gaining traction with younger consumers, particularly Gen Z. I find it fascinating how these younger folks are drinking less but spending more on high-end spirits, often pairing them with food or sipping them at festivals and sports events—what they call “third spaces.” It’s a trend that’s reshaping the industry.
Navigating the Tariff Threat
Now, let’s address the elephant in the room: tariffs. With potential trade disruptions on the horizon, especially in the U.S., Diageo’s heavy reliance on premium spirits sales in that market could face pressure. Higher tariffs mean higher prices for consumers, which could dampen demand. But here’s where I think Diageo’s resilience shines.
The company’s CEO, Debra Crew, seems unfazed. She recently noted on a podcast that Diageo has navigated steep tariffs before—like India’s 100% alcohol duties—and come out on top. I’m inclined to agree with her optimism. A company with Diageo’s global reach and brand power isn’t going down without a fight.
“We’ve dealt with duties and tariffs before. In the long run, we can mitigate those challenges.”
– Debra Crew, Diageo CEO
A Luxury Pivot: The High-End Bet
One of Diageo’s smartest moves in recent years has been its pivot to the luxury market. The creation of the Diageo Luxury Group is a game-changer. This division oversees high-end brands like Brora and Port Ellen Scotch, as well as the London-based fine wine and spirits retailer Justerini & Brooks. They’re also pushing products with a luxury price point of £100 or more, targeting affluent consumers who are willing to pay for exclusivity.
This strategy aligns perfectly with the trend of younger consumers opting for quality over quantity. A £50 100ml bottle of premium tequila for a single drink? That’s the kind of flex Gen Z is all about. It’s a bold move, and I think it’s a brilliant one.
The Numbers: Why Diageo Looks Cheap
Let’s get to the meat of the investment case. Diageo’s stock is currently trading at 16.6 times 2025 earnings, dropping to under 15 times by 2027. For a company with such a strong portfolio of premium brands, that’s dirt cheap. Compare that to its peers—Pernod Ricard and LVMH have taken bigger hits this year, down 33% and 37% respectively, while Diageo’s only down 24%.
The company’s also projecting free cash flow to climb from $3 billion this year to even higher levels by 2028. That’s a solid buffer against concerns about debt or dividend sustainability. Speaking of dividends, Diageo’s current yield of 3.7% is nothing to sneeze at. It’s the kind of steady income that makes long-term investors sleep well at night.
| Metric | Diageo | Pernod Ricard | LVMH |
| Year-to-Date Performance | -24% | -33% | -37% |
| Dividend Yield | 3.7% | 2.8% | 2.1% |
| P/E Ratio (2025) | 16.6 | 18.2 | 20.1 |
What the Experts Are Saying
Nick Train, a well-known UK fund manager, called Diageo a “once-in-a-decade opportunity” to buy a world-class growth business at a bargain. I can’t help but nod in agreement. Train points out that the core drivers of Diageo’s success—strong brands, global reach, and operational savvy—are not only intact but getting stronger.
But it’s not all rosy. Some analysts warn that tariff uncertainties could drag the stock lower before sentiment turns. My take? The market loves to overreact, and Diageo’s proven it can weather storms before.
The Risks: What Could Go Wrong?
No investment is a slam dunk, and Diageo’s got its share of risks. The tariff situation is a big one—especially in the U.S., where premium spirits are a major cash cow. Economic slowdowns could also hit consumer spending, particularly on luxury goods. And while Diageo’s cost-cutting efforts are promising, any slip-ups in execution could spook investors.
That said, Diageo’s global footprint and diverse portfolio give it a cushion. Unlike Pernod Ricard, which is heavily exposed to China’s cognac market, Diageo’s spread across multiple regions and product categories reduces its reliance on any single market.
Why I’m Bullish on Diageo
Here’s my two cents: Diageo’s a rare beast—a company with iconic brands, a proven track record, and a valuation that screams opportunity. The Guinness brand alone is a cash machine, and the luxury pivot could unlock serious growth. Sure, tariffs are a concern, but Diageo’s been dodging those bullets for years.
The stock’s not without risks, but at 16.6 times earnings and a 3.7% dividend yield, it’s hard to ignore. If you’re a long-term investor with a taste for quality, Diageo might just be your next big win.
So, what do you think? Is Diageo a buy, or are the risks too steep? I’d love to hear your thoughts in the comments below!
