How on earth have Diageo shares fallen by 56%?

On the surface, it’s hard to believe Diageo (LSE: DGE) shares have fallen by 56%. Its flagship brand Guinness might be the most popular alcoholic drink in the world. So much so, some investors are calling for it to be spun off. The Irish black beer brand would be expected to have a $10bn market cap all on its own.

Is Diageo a one trick pony then? Hardly. With drinks like Smirnoff, Johnnie Walker, and Tanqueray, it has some of the best names in vodka, whiskey, and gin respectively. Is it losing out in the no alcohol race? Doubt it. Guinness 0.0 is one of the most popular alcohol-free drinks going.

In my opinion, it is hard to believe the company has lost half its value. So, is this a bargain investment in the making? Are Diageo shares a cheap buy below Â£18?

Changing habits

The primary strike against? People are drinking less. This is because of several factors, including a generational shift, the effects of weight loss drugs, and folks trying to be a bit healthier.

The funny thing is, there has been zero impact on operations so far. Revenue has stayed level for the last five years, as has operating income! Dividends have grown in that time too. Forecasts for 2026 and 2027 suggest revenue and income will grow in both years, too.

And as a result of the falling share price, the price-to-earnings ratio has fallen. A forward P/E ratio of just 14 looks very attractive, below the FTSE 100 average.

This is perhaps why analysts are extremely bullish on the stock, perhaps more so than any other Footsie company. The average price target over the next 12 months is 29% higher. One analyst is predicting a 50% increase in share price over the next year!

Reversal of fortunes?

When it comes to investing, we need to look at the downsides too. In Diageo’s case, the foremost downside is lower consumption. Folks drinking less will mean lower revenues and likely a lower share price.

While Gen Z shifting away from alcohol seems to be considered a fait accompli among many, I’m not so sure this is indicative of a long-term trend. Humanity’s love affair with fermented beverages stretches back thousands of years. It’s a brave observer who is confident in predicting its demise.

Some of the most recent data paints an interesting picture in this regard, too. A study made headlines this summer claiming “Gen Z is now not drinking less than older generations of consumers”. This is due to a change in the last two years. For example, the percentage of Gen Z in the US who said they have had a drink in the last six months rose from 46% to 70% between 2023 and 2025.

It’s for these reasons that I think Diageo is one of the cheaper-looking stocks on the FTSE 100 and worth considering. I’d not be surprised to see a reversal of fortunes in the years to come.

The post How on earth have Diageo shares fallen by 56%? appeared first on The Motley Fool UK.

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John Fieldsend has positions in Diageo Plc. The Motley Fool UK has recommended Diageo Plc. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.