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Should You Buy Diageo plc (LON:DGE) At UK£027.435?

Today we’re going to take a look at the well-established Diageo plc (LON:DGE). The company’s stock saw a decent share price growth in the teens level on the LSE over the last few months. As a large-cap stock with high coverage by analysts, you could assume any recent changes in the company’s outlook is already priced into the stock. However, could the stock still be trading at a relatively cheap price? Let’s examine Diageo’s valuation and outlook in more detail to determine if there’s still a bargain opportunity. View out our latest analysis for Diageo

Is Diageo still cheap?

Diageo appears to be overvalued by 55.07% at the moment, based on my discounted cash flow valuation. The stock is currently priced at UK£27.44 on the market compared to my intrinsic value of £17.69. This means that the buying opportunity has probably disappeared for now. Furthermore, Diageo’s share price also seems relatively stable compared to the rest of the market, as indicated by its low beta. If you believe the share price should eventually reach its true value, a low beta could suggest it is unlikely to rapidly do so anytime soon, and once it’s there, it may be hard to fall back down into an attractive buying range.

Can we expect growth from Diageo?

LSE:DGE Future Profit June 21st 18
LSE:DGE Future Profit June 21st 18

Investors looking for growth in their portfolio may want to consider the prospects of a company before buying its shares. Buying a great company with a robust outlook at a cheap price is always a good investment, so let’s also take a look at the company’s future expectations. Though in the case of Diageo, it is expected to deliver a relatively unexciting earnings growth of 5.37%, which doesn’t help build up its investment thesis. Growth doesn’t appear to be a main reason for a buy decision for the company, at least in the near term.

What this means for you:

Are you a shareholder? It seems like the market has well and truly priced in DGE’s future outlook, with shares trading above its fair value. However, this brings up another question – is now the right time to sell? If you believe DGE should trade below its current price, selling high and buying it back up again when its price falls towards its real value can be profitable. But before you make this decision, take a look at whether its fundamentals have changed.

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Are you a potential investor? If you’ve been keeping tabs on DGE for some time, now may not be the best time to enter into the stock. The price has surpassed its true value, which means there’s no upside from mispricing. However, the positive outlook means it’s worth diving deeper into other factors in order to take advantage of the next price drop.

Price is just the tip of the iceberg. Dig deeper into what truly matters – the fundamentals – before you make a decision on Diageo. You can find everything you need to know about Diageo in the latest infographic research report. If you are no longer interested in Diageo, you can use our free platform to see my list of over 50 other stocks with a high growth potential.


To help readers see pass the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price sensitive company announcements.

The author is an independent contributor and at the time of publication had no position in the stocks mentioned.