Should you buy Diageo stock? (June 2024)

Описание: Published first at https://www.3minutebreakdowns.com
Diageo stock analysis. Ticker: $DEO

Diageo is one of the largest drinks companies in the world with over 200 brands including Johnnie Walker, Smirnoff, Baileys and Guinness. The company’s stock is down 22% over the past year prompting some investors to buy the dip. But is the stock undervalued?

At the latest share price, Diageo has a market value just under 75 billion dollars. There’s 1.8 billion of cash on the balance sheet and 19 billion of debt so the enterprise value is about 92 billion.

Over the last 12 months, Diageo has reported 21.6 billion dollars of revenue, 4.3 billion of net income and just under 3 billion of free cash flow. So Diageo stock is now valued at 4.3 times revenue and 17 times earnings.

That valuation is cheap for a company of Diageo’s caliber. After all, this is a company whose brands can be traced back to the 17th century. Revenue continues to grow consistently and Diageo returns capital in the form of dividends and share buybacks.

Looking at a historical chart of Diageo’s PE ratio you can see that the current PE multiple is near the bottom of its historical range and it's a similar story for the enterprise value to ebitda ratio. In other words, Diageo is about as cheap as it’s been for the last 12 years.

But despite Diageo’s blue chip status, there are some concerns around the business. Management issued a profit warning last year following weak sales in Latin America. That weakness was put down to cost of living pressures following the pandemic but Diageo is dealing with a much bigger trend of lower alcohol consumption in developed markets.

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