More gin, but easy on the tonic please By Investing.com

By Geoffrey Smith

Investing.com – This is THE trend of alcohol consumption in recent years, but does the stock market tell us that we are reaching the peak of gin?

Actions in Diageo (LON :), the largest spirits maker in the world, lost on Thursday as the company said the pace of its share buybacks would slow over the next three years, although its underlying business outlook is strong.

For a mature company in a market with heightened health awareness, Diageo has had an excellent performance over the last three years, rising 85% before reaching a peak in early July. But stocks have fallen 6% since the beginning of the month and the company's report for the year ended June did not reverse them Thursday.

Equities lost 2.1% one morning while the economy was calm and most other European markets were up: the index rose 0.2%, while German progressed 0.1% while another survey of miserable companies reinforced expectations regarding the action of the European Central Bank. support the economy.

At first glance, the Diageo update left little to be desired by shareholders worried about taking the bottle. Chief Executive Officer Ivan Menezes expects sales of organic products to continue to grow by about 5% per year and operating profit to increase by 7% annually. This is the kind of performance that Unilever (LON :), another well-established consumer goods giant, can only dream in the foreseeable future, judging by another meh that came out at the same time.

Sales of gin and tequila continue to grow as revenues grow faster than volumes, which is always a good sign.

Ironically, the reminder of the underlying strength of Diageo's business has brought more benefits to Fevertree, the maker of high-end mixers. Its shares rose 8.3%, reaching their highest level in more than a month, following a selloff following its own trading update.

Clearly, the problem for both companies lies less in their business than in their valuation: at 28 times earnings, according to data compiled by Investing.com, Diageo shares do not seem cheap – especially when they offer a dividend yield of just over 2%. Redemptions are also falling by an average of £ 1.5 billion a year over the next three years, up from £ 2.8 billion this year. however, Diageo (LON 🙂 still seems to be a bargain next to Fevertree (LON :), which trades at 43 times earnings, despite an inevitable slowdown in its growth rate as it rises.