Diageo shares just can’t catch a break! Here’s a major new risk
At £14.10, Diageo (LSE:DGE) shares have crumbled again after a solid start to 2026. It’s made me ask myself: what fresh horrors will the FTSE 100 company face next?
My question was answered earlier this week. The Middle East conflict has thrown up fresh hazards, including a brand-new danger that few (if anyone) had predicted.
So what’s happened? And should investors be avoiding Diageo shares like the plague?
Metal mayhem
Companies across the globe are experiencing greater cost pressures as the conflict continues. Energy prices are a huge drag on corporate profits, and Diageo’s no different. But the drinks giant faces a new cost threat many others shares aren’t: soaring aluminium prices.
This week, prices of the critical metal hit four-year highs of around $3,500 a tonne. The reason? Iran’s now targeting aluminium-producing facilities with drone attacks, raising existing supply fears. Both Emirates Global Aluminium and Aluminium Bahrain — which operates the world’s biggest single-site smelter — have reported damage in recent days.
The Strait of Hormuz closure is also impacting aluminium supplies. Costs could keep rising the longer the conflict rages on.
Problems mounting
The FTSE firm uses aluminium extensively to package Guinness, its ready-to-drink (RTD) products, and some of its premium drinks. Aluminium can account for 60%-85% of a can’s total cost. And with consumers feeling the pinch, Diageo has little-to-no wiggle room to pass these costs on.
I wouldn’t say this is reason enough to avoid or sell Diageo shares. However, it’s one more problem the firm has to overcome to start growing profits again.
The company has a job in its hands to revive sales as consumers cut back on premium spirits. A backcloth of weak economic growth and rising inflation is making things extremely tough. On top of this, Diageo must successfully navigate changing tastes in its Western markets — more specifically, rising demand for non-alcoholic beverages.
Are Diageo shares a buy?
The question for investors is: do these issues make Diageo a share to avoid? I don’t think so. With a forward price-to-earnings (P/E) ratio of just 12 times, I think these problems are more than baked into the share price. For context, the long-term P/E sits is between 21 and 22.
For me, the issue’s whether the business can bounce back from its current problems. I believe it can, making now a good time to consider buying the company on the dip. I’m considering increasing my own holdings as I write.
My main concern is that broader alcohol demand continues to sink. However, the business has demonstrated time and again its ability to adapt to changing tastes. And the roaring success of new lines like Guinness 0.0 suggest it knows how to address this particular challenge too.
I’m also hopeful that new CEO Dave Lewis will accelerate any turnaround, through measures like refocusing on core labels and selling underperforming ones. To me, Diageo still has enormous long-term earnings potential, and especially in its fast-growing markets.
The company could face further volatility in the coming weeks and months. But all things considered, I think Diageo shares are worth serious attention.
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Royston Wild 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.
