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From an investment perspective, I think there's a lot to like about the beverage maker Diageo (LSE: DGE). Over the past five years, Diageo's share price has fallen dramatically. That made it an attractive value for me to add to my portfolio a few months ago.
With the trading announcement today (September 26), one of the concerns that I feel has been weighing on the stock has been shed more light on.
Are you still there?
Diageo's investment case is straightforward.
Globally, the market for alcoholic beverages is huge and likely to remain so. Diageo is well placed to benefit from that, thanks to its portfolio of premium brands such as Johnny Walker again Smirnoff. That gives it pricing power and helps it earn more profit. It's no coincidence that the company is a Dividend Aristocrat, having grown its shareholder payout every year for more than three decades.
However, fears have been growing in the City about the decline of business potential in a fragile global economy. Weak performance in Latin America helped send Diageo's share price down. That raised the question of whether other markets could be in line for softer performance.
In today's statement, the company assured the market that, “Our expectations have not changed since we reported… first results on 30 July 2024. The global environment remains a challenge for our industry and for Diageo“.
Confirmation – comes to a point
At a high level, that sounds pretty good.
Expectations remain the same and things are not getting worse for business.
However, when I take a closer look, it reassures me a little. After all, the company confirms the expectations it set less than two months ago. For Diageo's complex business, I would be disappointed if its latest financial expectations are no longer in line with the latest forecast.
In addition to that, although the business said it was doing “good progress” regarding strategic initiatives such as improving the way we distribute its products to the important US market, the fact that Diageo has emphasized that the environment remains a challenge gives me a warning. That could set the stage for more problems down the line.
You want value
For years I loved the business but not the stock price. Challenging business conditions have reduced Diageo's share price this year to the point where I felt it was offering value.
On the other hand, maintaining market expectations could provide reason for the share to move higher from here. Indeed, as I write this on Thursday morning, Diageo is up 5% in early trading.
On the other hand, the underlying challenges feel like they are not over yet.
That could mean stocks continue to decline over time. As a long-term investor, I continue to see real value in investing and think the current Diageo share price is reasonable. I plan to catch up.
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