One very disappointing holding in my ISA is Diageo (LSE: DGE). Shares of the FTSE 100 spirits giant have fallen 20% over the last five years and by 33% since the start of 2022.

I’m now left wondering what to do. Should I remain patient or double down? Or even sell up and move on? Here’s my thinking right now.

What’s going on?

Like many companies, Diageo has been affected by soft consumer spending as inflation and higher interest rates have taken their toll on budgets.

In its largest market, North America, there’s been prolonged weakness in spirits, with evidence of downgrading from the kind of premium brands that Diageo’s famous for.

Meanwhile, its Latin American and Caribbean region has been particularly weak. Sales there for the current financial year (which ends 30 June) are expected to decline 10-20%.

Another thing here is that the market’s in wait-and-see mode on management. New-ish CEO Debra Crew is just about getting her feet under the table while the firm’s chief financial officer stepped down in May.

Analysts aren’t forecasting any growth this financial year. However, management’s still guiding for medium-term organic revenue growth of 5-7% a year. That currently looks very ambitious.

Overall then, there’s a lot of uncertainty around Diageo’s growth prospects, which is feeding into weak sentiment for the stock. It’s trading on a forward price-to-earnings (P/E) ratio of about 18, which is pretty low by its own standards.

A better long-term story

Given all this, why am I still a shareholder? Well, there are a few reasons. One is the sheer depth and quality of Diageo’s portfolio. It has leading brands in its three largest categories of whisky (Johnnie Walker), beer (Guinness) and tequila (Don Julio and Casamigos).

Second, there’s a long-term global trend of premiumisation, whereby consumers are choosing to drink better, not more. That is, consumers are increasingly willing to pay up for higher quality products perceived as having better taste, ingredients, or brand value.

Diageo has a 34% ownership in Moët Hennessy, the wine and spirits division of LVMH, so also has exposure to champagne and cognac. And while sales of these are also sluggish right now, I don’t think this is a bad stake to have over the long run.

Finally, Diageo set an ambitious goal in 2020 to increase its total beverage alcohol market share from 4% to 6% by 2030 (a 50% increase).

By 2022, it had a 4.7% share and still has over half a decade to reach its target. A 50% increase, by the way, would be the equivalent of around 30bn new individual drinks globally over that period, according to the firm.

So the growth story appears far from over, especially as an estimated 600m new legal-age drinkers will enter the market by 2030.

My move

On balance, I’m going to keep holding my shares for now. The company’s due to report full-year results at the end of July. I’ll wait till then to see how things are progressing.

If the update’s positive, then I may increase my holding. If not, then I’ll reassess my options.

In the meantime, I think there are better opportunities for my portfolio in June.