Every time I check Diageo (LSE: DGE) share price, I need a stiff drink. When I bought it, I thought I was buying a bargain FTSE100 Spirits gigantic weeks after it was hit with a profit warning in November 2023.

This warning was triggered by the crisis in Latin America, where ponderous drinkers switched to cheaper brands and supply problems emerged.

Since then, problems have accumulated. Sales have fallen, premium brand strategies have failed and the cost of living crisis has hurt consumers. The stock is currently down 30% in one year and 50% in three years.

I can usually take things like this in stride. Investing means accepting shocks along with successes, and over time, my individual stock choices overcome with ease FTSE100. Still, it’s frustrating when a seemingly solid blue chip like Diageo goes rogue.

I also have two long-term concerns. Younger people are drinking less, and novel weight-loss drugs may reduce demand for alcohol. Is the investment case for Diageo still valid?

I don’t think people will ever stop drinking completely. Alcohol has been a part of life for millennia, but it is still a worry. Still, I never seriously considered selling. Partly this is because I’m down about 36% and I don’t want to hang on to that loss. But only partially.

Weaker FTSE 100 result

The latest full-year results, released on August 5, showed that Diageo generated an impressive $2.74 billion in free cash flow, but operating profit fell 27.8% to $4.33 billion and net profit fell 39.1% to $2.53 billion.

Goldman Sachs analysts upgraded Diageo on August 8, stating that today’s valuation appears more favorable, but only from Sell to Neutral. Hardly audible support.

The stock is trading at a price-to-earnings ratio of around 14.7, which seems fair for a company with the global reach and strength of the Diageo brand.

Growth and income potential

Forecasts bring more joy. Conensus analyst forecasts suggest the stock will reach 2,316p within a year, up more than 30% from today. Add to that a yield of around 4.5% and the total return could be around 35% if forecasts prove to be precise. We’ll see.

Diageo’s cost and margin savings plans could provide further support. It continues to have one of the strongest balance sheets in the beverage industry, providing reliable cash generation and opportunities for investment and economic recovery.

Of course, there are risks. Growth stalled in key regions and management withdrew from its medium-term goals. Changes in consumer behavior and US tariffs on whiskey and tequila could hurt sales. Fixing a struggling company is not an overnight task, it often requires a substantial reset, and I don’t think we’ve had that yet.

Holding for the long haul

Diageo may have turned me on to drinking, but I stick around, hoping that one day it will be a cause for celebration. Maybe I need to be patient after all. I think it’s worth considering buying, but only for investors who understand the risks and look long-term. They may need to have a bottle of something mighty on hand.