Three years ago Diageo (LSE:DGE) performed extremely well. The leading alcoholic beverages business has achieved fairly consistent organic growth, supported by a global portfolio of brands including: Johnny Walker, GuinnessAND Smirnoff.

However, as inflation rose, everything changed. Macroeconomic weakness around the world, creating a cost of living crisis in the UK and abroad, has resulted in a decline in spending on premium discretionary products. This shift in consumer behavior was particularly noticeable in Diageo’s key markets in Europe and the US.

This ongoing pressure is only exacerbated by increasing commercial uncertainty and executive turnover, which saw Debra Crew take over as CEO in July 2023, only to step down earlier this year.

Result? Since the beginning of November 2022, Diageo shares have lost 54.3% of their value. Therefore, an initial investment of £5,000 three years ago is now only worth £2,285, a painful loss.

But what if Diageo stock became a golden buying opportunity right now?

Premium brand at a reduced price

Downward pressure on Diageo shares continued this month, with investors once again disappointed by the group’s latest results. As a result, FTSE shares are currently trading at levels not seen since 2015, with a very affordable forward price-to-earnings ratio of just 11.6.

Investors seem to have lost almost all hope in this business. And while there are valid reasons for concern, the pessimism around Diageo may have been overblown.

Despite all the challenges the company faces, it nevertheless owns some of the most well-known brands in the world, which provides a distinct competitive advantage and pricing power. In times of economic downturn, leveraging this competitive advantage is arduous. But when conditions finally improve, there will likely be further consumer spending.

This possible cyclical change is a natural impetus for the revival of Diageo’s business. But by streamlining your company’s operations to create lasting savings on an annual basis, it can emerge from this storm as a much more competent and profitable company.

In fact, we’ve seen an almost identical scenario before. During the 2008 financial crisis, Diageo’s sales, profits and share prices fell as discretionary consumer spending collapsed. Management responded by adopting aggressive cost control measures. And as economic conditions improved, so did Diageo.

So can he do it again?

Time to buy?

Past performance does not guarantee future returns. Today, Diageo has a completely different management team than it did over a decade ago.

After Crew’s departure in July, the company still lacks a indefinite leader who could set a up-to-date vision or outline a turnaround strategy. Nevertheless, previous cost-cutting initiatives continue and the company appears to remain on track to deliver $3 billion in free cash flow by the end of 2026.

Assuming this goal is achieved, it will give anyone who moves into the corner office a lot of financial flexibility to pursue their own turnaround plan, as well as reduce leverage on the balance sheet.

All of this, of course, carries significant execution risk. For now, investors are keeping Diageo shares on a very tiny leash. However, given that the valuation is currently in a discount zone, it is a risk worth taking. As such, I believe long-term value investors may want to explore this opportunity further.

But that’s not the only potential bargain shopping opportunity currently available.