Business & Investment

Do I need to buy Diageo shares at the current price?

Diageo (LSE: DGE) Stocks are increasing. The liquor company is on my list of “stocks to buy in July” and continues to move strongly. Inventories have risen 22.59% in the last 12 months Best ever last week..

Let’s take a look at the factors driving Diageo’s growth. With long-term growth in mind, I think it’s worth buying at the current transaction price of 3,410p.

Preferred conditions for growth

The pandemic caused a significant decline in sales and operating income fell for the first time since 2003. However, as the market reopened, alcohol sales recovered. With the latest lifting of the UK blockade restrictions, nightclubs can be reopened and Diageo shares have risen significantly. Also, the resurgence of domestic sports and live music events could further boost alcohol sales.

Diageo’s international market is also relaxed. North America is the largest market, accounting for 39% of total sales. After the unlimited reopening of Las Vegas in June 2021, the region has seen a surge in live events. As a result, net sales in the region increased by 12.3% in the first half of 2021.

Major finance

Diageo is focused on acquiring large and small global alcohol makers / brands. I think cash on hand is an important factor in determining the potential for expansion.of 2021 H1Net cash from operating activities increased by £ 700m to £ 2bn. Free cash flow increased from £ 800m to £ 1.8bn. These are promising signs of Diageo strains since 2021.

The increase in cash reserves is due to a decrease in tax payments in 2020 and a decrease in creditor balances due to improved sales. The company has also resumed a capital return (ROC) program of up to £ 4.5 billion to shareholders. As a result, the interim dividend increased 2% to 27.96p per share.

Focusing on markets such as China and India is great news, and the region accounts for 20% of total sales. Net sales in Greater China increased by 15% in the first half of 2021. DiageoIndia, a subsidiary of Diageo PLC, reported a 57% increase in net sales from 2020 levels. Improving sales in these large alcohol markets is a positive sign of Diageo stocks.

The company forecasts intrinsic revenue growth of 14% in 2021, and CEO Ivan Menezes says the business is recovering after the pandemic.

concern

Profit per share fell 14.6% to 67.6p in 2020 as a result of a 3.4% decline in intrinsic operating income and unfavorable exchange rates in the international market. At the current transaction price, the price-earnings ratio is 32. For me, it seems to be a typical case of bloated evaluation.

Focusing on the international market, strict industry regulations expose companies to uncertainty.Although the company owns the following major international staples: Smirnoff When Johnnie Walker, Local prices and profits are subject to constant change.

However, I’m still optimistic about the future potential of Diageo shares and remain on the list of FTSE 100 shares to buy for long-term returns.


Suraj Radhakrishnan does not have a position in any of the shares mentioned. Motley Fool UK recommends Diageo. The views expressed about the companies mentioned in this article are those of the author and may differ from the official recommendations made by subscription services such as Share Advisor, Hidden Winners, and Pro. Here at The Motley Fool, by exploring different insights, Better investors than us.



Do I need to buy Diageo shares at the current price?

https://www.fool.co.uk/investing/2021/07/27/should-i-buy-diageo-shares-at-its-current-price/ Do I need to buy Diageo shares at the current price?

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