Diageo (NYSE: DEO), the colossal multinational English alcoholic beverage company. has labels like Johnnie Walker, Tanqueray, Don Julio, Ketel One, and Guinness in its massive portfolio. The world’s number one spirits manufacturer holds an enviable 27% global market share but was not immune to the effects of the pandemic. COVID-19 cost the company a double-digit decline in sales thanks to its impact on the hospitality business. As the world continues to recover, so will business, and Diageo is the only alcoholic beverage stock I’m buying right now.
A look at Diageo’s financials
Diageo is firing on all cylinders with a gross profit margin of over 60% and the business is on track to getting back to normal. According to its latest earnings report (FY 2021), net sales are up 16%, and operating profit increased by over 17%, organically year-over-year (YoY). Additionally, in the same time period, its EPS is up over 7% and the company raised its dividend by 4%. Diageo’s balance sheet is in good form as well with its net cash up nearly 58% YoY to the tune of nearly $5 billion. The company’s stock price has done well this year as well, surging over 26% year-to-date (YTD) as of October 13.
What I like about Diageo
Alcohol has always been a popular elixir in good times and bad. As tastes and fashions change and evolve and fads come and go, Diageo will remain profitable because it has such a diverse portfolio of premium brands. In the early 2000s, for example, vodka and martinis were all the craze. Fast forward ten years and Scotch came into fashion. And you could never go wrong with a pint of Guinness.
With its sale of all of the above drink types and many more, Diageo cannot lose when fads shift. Furthermore, the company is everywhere, boasting a presence in over 180 countries and more than 150 production sites around the world; it has products for every taste and every price point imaginable. Diageo also pays a dividend, one that has increased 225% over the last 20 years and whatever cash it has leftover, it repurchases shares, thereby boosting investor value.
Risks to Diageo’s share price
The pandemic continues to hammer away at business as bars and restaurants are open in a limited capacity. This creates a poor environment for the promotion of a given drink type and has a negative impact on marketing. Moreover, Diageo’s long-term debt of over $20 billion might impact future dividend payments
Diageo’s growth potential
This is a company with a rich, diversified portfolio of premium brands and more affordable labels for every consumer. It’s also fad-proof thanks to its wide array of offerings but should a product become out of favor too long, it can be sold off and replaced with a more popular offering. This is a fantastic long-term investment.
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Contributing Writer at MyWallSt
David fell in love with the stock market in 2000 after making $30,000 overnight on Techniclone. His favorite stocks today are Netflix, Google, Amazon, and Apple as they are the market leaders in their sectors and are safe long-term investments.