For many years, Diageo (LSE:DGE) shares were seen as a bit of a portfolio ‘no-brainer’. The sort of FTSE 100 stock you could sleep easy at night owning, knowing that every few seconds someone, somewhere in the world, was slurping one of the firm’s drinks.

That could be a Guinness in a village pub, a G&T (with Tanqueray or Gordon’s) in a New York bar, or a Baileys at Christmas. Or even baijiu at a formal banquet in China, where Diageo owns approximately 63% of distiller Sichuan Swellfun.

The company’s growth strategy was based on premiumisation. This was summed up by its mantra: “Drink better, not more.” Drinking better, of course, involved paying a premium for Diageo’s brands, thereby fattening profit margins.

However, since revellers rang in the 2022 New Year, the stock has shockingly collapsed by 55%. A bitter cocktail of factors have hurt sales, ranging from inflation and higher interest rates to Gen Z wellness trends and possibly even GLP-1 weight-loss drugs.

Cash-strapped drinkers began trading down to the rough stuff in 2023, especially in Latin America. Its premiumisation strategy on the ropes, Diageo finally scrapped its medium-term annual sales growth target of 5%-7% in 2025.

Where are we now?

Diageo doesn’t report H1 2026 earnings until 25 February, but November’s Q1 update was sobering. Management said it expects organic net sales growth to be flat or even slightly down this year due to weakness in China and the US.

But whisper it quietly, there has been a bit of a recovery brewing, with the share price up 14.7% in 2026.

Granted, it’s barely detectable on the graph above and is nowhere near champagne-popping territory. Yet it’s enough to have turned £15,000 invested at the beginning of the year into roughly £17,200.

So, what’s going on? Well, it’s surely linked to new CEO Dave Lewis, who started in January. Dubbed ‘Drastic Dave’, he’s known as a turnaround specialist, having steadied scandal-hit Tesco in the mid-2010s.

Diageo has already offloaded its stake in East African Breweries for approximately $2.3bn. More asset sales could follow, including the baijiu brand in China. The firm is working on this, according to Bloomberg News. It’s worth noting that Lewis sold Tesco’s assets in China.

Additionally, Diageo has a 34% stake in Moët Hennessy, which analysts at RBS reckon could be worth as much as €4bn. Somewhat randomly, there’s also an Indian cricket team, possibly worth $2bn, as well as underperforming spirits labels that could be flogged.

These potential disposals could significantly improve the company’s stretched balance sheet. And it’s already on track to deliver around $625m in cost savings over the next three years.

Slimmed-down Diageo

Of course, those challenges I mentioned above — consumer pressures, GLP-1s, alcohol moderation, and US weakness — are still present. Drastic Dave can’t wave a magic wand and make them disappear.

However, he has vast brand and marketing experience from his time at Unilever. And a slimmed-down Diageo centred around growth brands like Guinness, Johnnie Walker and Smirnoff Ice could still reward shareholders handsomely in the years ahead.

CFO Nik Jhangiani recently said Diageo hasn’t even “scratched the surface in terms of what we can do with Guinness” worldwide.

For investors looking for a turnaround stock, I think this one is well worth considering while it’s down 55%.