Is Diageo an Opportunity After 30% Share Price Drop in 2025?

• If you’re wondering whether Diageo is finally offering real value, you’re not alone. Savvy investors are buzzing about whether this drop is an opportunity or a warning sign.
• Diageo’s stock has declined sharply this year, down 30.6% year-to-date and 23.1% over the past 12 months. This has sparked fresh questions about its growth potential and risk factors.
• Market watchers have pointed to sector-wide concerns around shifting consumer trends and global spirits demand, as well as company-specific headlines like changes to Diageo’s leadership team and strategic investments in premium brands, as key drivers of recent price action.
• When it comes to valuation, Diageo currently scores a 4 out of 6 on our fairness checks. This suggests some hidden strengths, but maybe not the full picture. Let’s dig into the numbers next, and stick around to discover a smarter way to assess value that most investors overlook.

Find out why Diageo's -23.1% return over the last year is lagging behind its peers.

Approach 1: Diageo Discounted Cash Flow (DCF) Analysis

A Discounted Cash Flow (DCF) model estimates a company’s intrinsic value by projecting its future cash flows and discounting them to today’s dollars. This method is widely used because it seeks to capture the long-term potential of a business based on how much cash it can generate for shareholders.

For Diageo, the most recent free cash flow stands at $2.79 Billion. Analyst forecasts project this will rise steadily, reaching around $3.75 Billion by 2028. These projections continue through 2035, using both analyst estimates and extrapolation, and all cash flows are calculated in US dollars.

Based on these 2 Stage Free Cash Flow to Equity calculations, Diageo’s intrinsic value is estimated at $30.64 per share. This is 42.3% higher than the current share price, suggesting a notable margin of safety for investors seeking undervalued opportunities.

The DCF model indicates that Diageo may be significantly undervalued at present, suggesting the market may be overly cautious about its outlook and not fully appreciating its future earnings power.

Result: UNDERVALUED

Our Discounted Cash Flow (DCF) analysis suggests Diageo is undervalued by 42.3%. Track this in your watchlist or portfolio, or discover 924 more undervalued stocks based on cash flows.

Head to the Valuation section of our Company Report for more details on how we arrive at this Fair Value for Diageo.

Approach 2: Diageo Price vs Earnings

The Price-to-Earnings (PE) ratio is often the go-to metric for valuing established, profitable companies like Diageo, because it directly relates a company’s share price to its per-share earnings. This ratio gives investors a quick sense of how much they are paying today for each pound of the company’s current profits.

A “normal” or “fair” PE ratio depends on expectations for future earnings growth and the perceived risk of the business. Companies with strong growth or less risk tend to command higher PE ratios, while those facing uncertainty are usually priced more conservatively.

Currently, Diageo trades at a PE ratio of 21.8x. That puts it roughly in line with the average for its global beverage peers at 21.3x, and notably above the broader beverage industry average of 17.6x. However, headline multiples do not tell the full story.

Simply Wall St’s proprietary “Fair Ratio” offers deeper insight. This metric weighs a range of company-specific factors, such as Diageo’s expected earnings growth, strong profit margins, industry dynamics, market size, and risk profile, to estimate a justified PE multiple for each business. For Diageo, the Fair Ratio stands at 27.0x, suggesting the shares should reasonably trade at a higher multiple than peers or the sector average.

When compared side by side, Diageo’s current PE of 21.8x is below its Fair Ratio estimate of 27.0x. This indicates the stock may be undervalued through this lens despite sector headwinds.

Result: UNDERVALUED

PE ratios tell one story, but what if the real opportunity lies elsewhere? Discover 1423 companies where insiders are betting big on explosive growth.

Upgrade Your Decision Making: Choose your Diageo Narrative

Earlier we mentioned that there is an even better way to understand valuation, so let’s introduce you to Narratives. Simply put, a Narrative is your story and perspective on a company, connecting what you believe about Diageo’s future to financial forecasts and, ultimately, to a fair value that’s uniquely yours.

Narratives go beyond the numbers by allowing you to clarify your assumptions about future revenue, earnings, profit margins, and industry trends, then tie those assumptions directly to a fair value estimate. On Simply Wall St’s Community page, millions of investors are already using Narratives to make their decision-making far more personal, informed, and dynamic.

Here’s how it works: Narratives let you compare your calculated Fair Value, based on your outlook and reasoning, with the current market Price, helping you decide if it’s time to buy, hold, or sell. Even better, Narratives are updated automatically whenever key news, earnings, or company data changes, so they always reflect the latest information.

For example, some investors currently think Diageo is worth as much as £27.32 based on long-term earnings stability and margin expansion, while others set their sights as low as £17.19 citing regulatory risks and softer growth. This demonstrates just how much the “right” value depends on your own Narrative.

Do you think there's more to the story for Diageo? Head over to our Community to see what others are saying!

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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