Many have been eyeing up Diageo (LSE: DGE) shares, since they lost 50% in value, as perhaps one of the FTSE 100‘s best value stocks. I remember reading a lot of bullish predictions around the turn of the year. The new CEO ‘Drastic Dave’ was in and ready to ruffle a few feathers; the popularity of drinks like Guinness and Johnnie Walker would endure. The time to buy was now when the shares were at their cheapest.

What has happened since? The share price fell yet further, down 13% from the beginning of the year. That could mean April 2026 is simply an even more undervalued entry point, or it could mean the shares are nothing more than a falling knife – not something you want to catch hold of. Here’s what I think.

Consequences

It’s hard to discuss any stock this spring without mentioning the conflict in Iran. There’s good reason, too. There aren’t many companies across the world that won’t be affected by the blocked shipping lanes, rising cost of energy and insurance, and the consequences of inflation up and down the supply chain.

Inflation is the last thing Diageo wants after its recent struggles. For context, the latest sales figures suggest that folks are buying cheaper spirits, the problem especially pronounced with the white spirits (or baijiu) it sells in China.

This is at odds with the ‘premiumisation’ strategy the firm has been gunning for. Essentially, Diageo has been targeting the top end of the market while consumers have been shifting to the bottom end.

Fresh inflation worries might exacerbate these problems. And that’s a real risk if the conflict persists for much longer. This is one reason why the share price has been falling this year.

The case

How are things looking now then? Well, bargain hunters will notice that the forward price-to-earnings ratio has now dropped to around 11. That’s well below the FTSE 100 average and less than half the P/E ratio of 25 that Diageo had been trading at only a couple of years ago.

Such a cheap valuation suggests threats on the horizon or a company in decline. Which is the case here?

It’s true that concerns around lower alcohol consumption have been one of the causes of the firm’s malaise. The biggest risk is probably that the recent shift away from booze among Gen Z and those taking weight-loss drugs accelerates. These type of macroeconomic factors can worsen the plight of even the best-run businesses.

On the other hand, revenue and earnings haven’t been hit hard yet. That’s why the P/E ratio is looking so attractive – Diageo is still making a lot of money. And the latest forecasts suggest sales will grow in all regions over the next two years. I think the stock is worth considering.