The crisis was supposed to be over for Diageo (LSE: DGE) shares. The shifts in alcohol consumption among Gen Z showed signs of reversing. The effects of weight-loss drugs were priced in. The inventory glut and threat of destructive tariffs were mostly over. And new CEO ‘Drastic Dave’ Lewis had been brought in to cut costs and streamline the business towards a brighter tomorrow.

And yet, the last month has been a nightmare for the seller of Guinness, Tanqueray, and Johnnie Walker. Diageo has crashed to a 52-week low. The only FTSE 100 stocks doing worse are those getting rocked by the Iran war and its effects on flights and oil prices (like easyJet) or inflation and possible interest rate hikes (like Barratt Redrow). What happened? And is this a golden opportunity to buy dirt-cheap shares at a low?

Backfire

On 24 February, the Diageo share price was 1,874p. On the day that I write this, it’s 1,467p. That’s a drop of 21.69% in just three weeks.

An example stake of £15,000 would have fallen to £11,746 over the period. Any investors would have lost over three grand in less than a month.

What happened? The half-year results, with sales slow in North America and China (especially in white spirits) and a 50% cut to the dividend, served up the double whammy. It seems like factors like changing drinking habits are starting to have an effect on sales, and slashing a dividend yield will never impress the markets.

Perhaps the most concerning part of all this is the nature of the weak demand. To put it simply, folks are buying cheap. A consumer base that wants bargain basement spirits is not great news for a company that has been prioritising the opposite end of the market. The Diageo ‘premiumisation’ strategy of doubling down on expensive brands might be backfiring.

Bright spots

Are there bright spots? Certainly. The enduring popularity of Guinness is a plus point for Diageo. Net sales of the black beer were up in all regions except Asia, for a total of 10.9% growth on the whole.

And in an age where many consumers are getting health-conscious and opting out of alcohol, Guinness offers one of the best-tasting 0% offers going. This doesn’t surprise me – it’s the only non-alcoholic beer I’ve ever tasted that comes anywhere near the real stuff.

The success of Guinness is such that Diageo might spin off the brand. Last year, some estimates put a rumoured ‘Guinness’ company to be worth £10bn in market cap. That would be enough to put it onto the FTSE 100. And it makes up a pretty big chunk of the £33bn that Diageo is now worth.

Is all this enough to make Diageo a good buy today? Only time will for sure, but I think this is a stock that could be worth considering for an investor aware of the risks.