The Diageo (LSE: DGE) share price has skilled a dramatic collapse over the past three years, falling greater than 40%. I’ve skilled this nasty decline first hand as I personal the FTSE 100 inventory in my Shares and Shares ISA.

Can shares within the Johnnie Walker and Guinness proprietor recuperate within the years forward? Or is that this inventory now useless cash? Let’s talk about.

Why’s the share price fallen?

First, let’s recap why the shares have tanked. There are a couple of causes together with:

• A slowdown in its main markets after the pandemic (when folks spent some huge cash on top-shelf booze)
• Extra stock issues, significantly in Latin America
• Considerations that youthful generations are consuming much less alcohol
• Considerations that GLP-1 weight-loss medicine like Wegovy and Ozempic are lowering demand for alcohol
• Extra deal with the hyperlink between alcohol and most cancers
• Insecurity within the new administration crew (legendary CEO Ivan Menezes died in mid-2023)
• Rising bond yields (dividend shares like this have a tendency to lose some enchantment when bond yields are greater)

General, the corporate’s confronted fairly a couple of challenges.

Is a restoration on the playing cards?

As for whether or not the shares can recuperate, this concern appears to divide opinion.

There are nonetheless loads of traders which can be assured within the long-term development story right here. A very good instance is British fund supervisor Nick Practice, who runs the Lindsell Practice UK Fairness fund. On the finish of 2024, Diageo was the second largest holding in his fund (9.9% of the portfolio). He continues to again within the energy of Diageo’s manufacturers and believes the corporate’s price much more than its present worth (£54bn).

However, there are traders who consider the corporate’s more likely to battle going ahead. An instance right here is Terry Smith, who runs the favored Fundsmith Fairness fund. Final yr, he bought his total holding in Diageo after holding the inventory for greater than a decade. He cited issues with the brand new administration crew and in addition stated the emergence of GLP-1 weight-loss medicine has modified the outlook for the corporate (though he’s nonetheless invested in Jack Daniels proprietor Brown Forman).

We suspect the whole drinks sector is within the early phases of being impacted negatively by weight-loss medicine
Fundsmith portfolio supervisor Terry Smith.

My glass-half-full view

Personally, I’m cautiously optimistic that the shares can recuperate over time. I consider most of the present points (shopper demand, extra stock, and so forth) are comparatively short-term in nature.

In relation to GLP-1 weight-loss medicine, I’m not completely satisfied they’re going to considerably scale back demand for booze. Though I’ll admit there’s some uncertainty right here.

That stated, I’m involved about demand from youthful generations. That is the largest threat with the inventory, in my opinion. Not too long ago, I learn that 36% of UK adults underneath 25 say they’re non-drinkers. That’s fairly a excessive determine.

The excellent news is that Diageo continues to hike its dividend fee. At the moment, the shares are yielding about 3.6%. Because of this whereas I maintain my shares I’m being paid to attend for a restoration within the share price. After all, there aren’t any ensures it would recuperate, so I’m placing cash into a lot of different shares to hedge my bets.