Here are the latest Diageo share price predictions after crashing by almost 30%

The Diageo (LSE: DGE) share price has dropped significantly recently. Down 15.7% over the last 12 months and 28.37% over three years.

Problems came to a head last November after a profit warning was issued following a decline in sales in Caribbean and Latin American markets. As the local economy slowed, cash-strapped people switched to cheaper local brands, and inventory problems left Diageo with a pile of unsold stock.

Should I sell this weaker FTSE 100 company?

This seemed like a great opportunity to buy a company I had had on my watchlist for years, but at a significantly reduced valuation. I invested in Diageo shares, assuming they would rebound quickly. They don’t have it.

The cost of living crisis is dragging on, not just in the UK but around the world. Drinkers don’t have as much money as they do and they don’t have as much reason to celebrate.

Diageo is different FTSE100 a company that was hoping to make it big in China, but the Chinese economy is not what it used to be. People have less cash to spend on premium Western brands. Fears of a trade war have intensified since Beijing imposed temporary anti-dumping duties on imports of European brandy.

As I waited, I began to worry. What happens if Diageo shares never recover? Younger people drink less. They obviously don’t want their alcohol-fueled antics ending up on social media and affecting their career prospects.

I wonder if older people slow down too. I went to the University of Sheffield 40 years ago and organized a small meeting over the weekend. We all took it in stride with alcohol. The rest of Sheffield was still shaking, but maybe not as much as I remembered. This might just be my middle-aged perspective.

I keep it, but I won’t buy it again

While Latin America and the Caribbean continues to disappoint, full-year 2024 results showed that Africa, Asia-Pacific and Europe remained “resistant”. Diageo also maintains or increases share in its key US market.

Hopes that the Federal Reserve will plan a soft landing further boosted the company’s stock. Diageo shares are up 4% over the past week.

Today, Diageo has a price-to-earnings ratio of 19.34. That’s higher than the FTSE 100 average of around 15 times earnings, but cheaper than the 24 times it trades at. It looks steep considering the price-to-sales ratio is 2.7. Investors pay £2.70 for every £1 of revenue generated by Diageo.

21 analysts offering annual price forecasts for Diageo set an average target of 2,676.5 pence per share. That’s just 2% higher than today’s 2,621.5p. Brokers’ forecasts are just guesses, but they are still disappointing.

An operating margin of 21.5% and a return on capital employed of 30.7% make me optimistic. Although the yield is just 3.07%, Diageo has a solid track record of dividend growth, as the chart below shows.

Chart by TradingView

I have decided to hold my Diageo shares. I would be foolish to sell before the economic recovery, which will surely come at some point. When this happens, perhaps we will all regain our taste for alcohol. However, I won’t buy any more.