Since the beginning of 2026, Diageo (LSE:DGE) shares have been treading water. But many City insiders thought the drinks giant’s stock would be one of the FTSE 100’s best performers this year.

Let’s take a closer look and see why this has yet to happen and, more importantly, what might happen during the remainder of the year.

A fallen giant

Diageo is huge. On the plus side, this means it has the financial resources necessary to follow a new strategy. However, given its size, any turnaround is likely to take some time.

The group’s new boss, Sir Dave Lewis, who took up his role at the start of January, has now had time to come up with a plan to overcome an industry-wide problem of people drinking less and other behavioural changes.

And it looks as though he believes ready-to-drink (RTD) beverages are part of the solution. He reckons they could be “a very significant and profitable opportunity”. This is understandable given that it’s the only sector of the spirits market that’s growing.

Diageo hopes that its stable of instantly-recognisable brands will be well received in this fashionable segment. The group’s started selling 100ml cans of some of its cocktails to go alongside larger bottles. The smaller size is intended to appeal to those on a picnic or at the beach.

However, new entrants are likely to be attracted by a growing market and could yet throw a spanner in the works.

I’m particularly encouraged by the way that the… Diageo team, is engaging in the strategic refresh and the rethinking around how it is we can be more competitive and effective as an organisation.

Sir Dave Lewis, Diageo CEO, May 2026

Are we there yet?

Look closely and it’s possible to see some small green shoots of a recovery. During the quarter ended 31 March 2026, organic net sales increased by 0.3% and volumes rose by 0.4%, compared to the same period a year earlier.

However, the group still has a large debt pile – which increased during the second half of 2026 – and it recently announced a cut in its dividend to help address this.

Personally, I have confidence in Diageo and its boss, who established a formidable reputation at Tesco and Unilever. In particular, Sir Dave seems highly effective at stripping out waste and getting a business to focus on its strengths.

Indeed, I think the group will start to recover soon. It has an impressive stable of brands, including Johnnie Walker, Guinness, and Smirnoff which, and the trend towards ‘premiumisation’ (drinking better, not more), should be to its benefit.

Indeed, the majority of analysts appear to agree with me. The consensus is that the stock’s approximately 20% undervalued. And of the 22 covering it, 14 rate it a Buy. Only two are advising their clients to sell.

On balance, I still think it’s one to consider and I can understand why a number of analysts tipped it at the start of the year. However, it’s likely to appeal only to patient investors. Those in a hurry are likely to find better opportunities elsewhere.

Should you invest £5,000 in Diageo Plc right now?

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James Beard does not hold any positions in the companies mentioned.