Down 44% in 3 years, but experts forecast the Diageo share price is set for a stunning rally!

The Diageo (LSE: DGE) share price is nursing the mother of all hangovers. Once seen as one of the most solid stocks on the FTSE 100, it’s now in the bargain bin, down a whopping 44% over the last three years.

Those who bravely bought the dip – me included – have taken a thumping as the stock keeps sinking. Over the past year, it’s down 28%. Even in the last month, it’s shed another 5%. It just won’t stop.

Can this FTSE 100 flop fight back?

Its struggles began with a November 2023 profit warning over sales in Latin America & the Caribbean, and it’s been bad news all the way since.

Economic instability and currency depreciation have hammered sales, while its premium spirits brands have struggled in tougher times. When budgets are tight, luxury malts, celeb-backed Tequilas and fancy craft gins stay on the shelf while cheaper rivals fly.

Trade war fears haven’t helped, with Diageo’s Canadian whisky and Mexican Tequila brands on the frontline of Donald’s Trump’s tariffs. On 4 February, it scrapped profit guidance, saying it was too early to assess the impact on financial performance.

As if that wasn’t enough, young people simply aren’t pulling their weight by drinking enough booze. It’s a huge generational shift and nobody knows where it will end.

When Deutsche Bank upgraded the stock from Sell to Hold on 3 March, it was seen as a major win. That’s how low expectations have sunk.

Diageo’s market cap has plunged to £45bn, and its once lofty price-to-earnings ratio of nearly 25 has collapsed to around 15. It’s cheaper than it was, but not dirt cheap.

The dividend, which had been a lowly 2%, has shot up to nearly 4% as the shares slumped. Good news for new investors, bad news for those (like me) who’ve seen their capital shredded.

So, is Diageo worth considering today? Here’s where things get interesting. 

Lower stock price, higher dividend income

The 21 analysts serving up one-year share price forecasts have produced a median target of 2,537.5p. If correct, that’s a pretty hefty increase of almost 23% from today. Combined with that yield, this would give investors a total return of 27%. That would be a pretty stunning turnaround, if it happens.

But forecasts are slippery things. Some of those estimates are probably outdated by now. Plus, every stock is at the mercy of external events, both predictable and unforeseeable. Let’s say I’m sceptical.

Diageo certainly has room to recover. It’s fallen so far that new investors have a safety net of sorts. Even if it doesn’t surge back to its former highs, there’s a case to be made that the worst is over.

And it always has Guinness. The brand is flying, arguably cooler than ever. It’s now the jewel in Diageo’s crown.

Diageo is worth considering for long-term investors who believe in the group’s resilience. As a battle-scarred veteran, I’d say don’t go into it thinking this is a guaranteed win. There’s still plenty of uncertainty ahead.

This post was originally published on Motley Fool