Could Diageo shares be a value trap?

Could Diageo Shares Be a Value Trap?

Diageo shares have performed poorly over the past five years, falling 32%, while the broader FTSE 100 index has advanced significantly. Fans of good drinks may have seen promises that didn't quite materialize. Diageo Diageo plc, a brewer and distiller, has enjoyed decades of business success. However, concerns linger among investors about its future commercial prospects.

I believe those prospects remain promising, which is why I am comfortable holding onto my Diageo shares. Yet, there is the question whether this could turn out to be a value trap—a situation where a stock appears undervalued but continues to decline.

Reasons for Past Profitability

Large addressable market of consumers
Efficient operations benefiting from economies of scale
Portfolio of unique, premium brands supported by iconic production facilities, providing substantial pricing power

Current Challenges

The foundation under Diageo has shifted, though its brands remain strong. Some recent operational concerns have emerged, such as shortages of Guinness supplies in the UK last year, raising questions about management effectiveness.

"I think getting back to great management is doable and within the company’s control."

A far bigger long-term challenge, mostly beyond Diageo’s influence, is the uncertain future demand for alcoholic beverages.

Author’s Summary

Diageo faces significant headwinds despite strong brands and scale; success hinges on management recovery and navigating uncertain alcohol demand.

Fool UK — 2025-11-05