Value
7.7/10data confidence 83%| Component | Sub-score |
|---|---|
| P/E | 6.8 |
| P/S | 8.8 |
| Fwd P/E | 8.7 |
| PEG | 8.4 |
| Analyst target | 6.0 |
- ▸Forward P/E: 12.9x
- ▸PEG: 0.77
- ▸Attractively valued
DEO · Why this verdict
Why Diageo (DEO) is rated SELL
Updated
Model-generated analysis — not investment advice. Not a registered investment advisor. Past performance does not guarantee future results.
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VerdictSELL
Overall score5.1/10
ConfidenceMEDIUM
MacroNEUTRAL
Thesis pillars
| Pillar | Expectation | Trend |
|---|---|---|
Free cash flow represents only 40% of reported net income — a significant gap that raises a quality concern about the reliability of earnings as a measure of the cash the business actually generates, particularly given leverage at 1.8 times debt-to-equity that requires cash service. Quality breakdown | Free cash flow rises to at least 70% of reported net income for 2 consecutive reporting periods, narrowing the quality gap and reducing the risk that leverage is supported by earnings that do not fully convert to cash. | →Stable |
| CounterThe gap between free cash flow and net income may reflect elevated capital expenditure investment rather than structural earnings quality deterioration — if so, the shortfall could normalize as the investment cycle winds down without any fundamental impairment. | ||
The stock has triggered a death cross technical pattern, trades below all of its major moving averages, and its 200-day moving average is declining at a rate of 3.6% over the last 30 days — a confirmed downtrend that blocks disciplined new entry and signals sustained selling pressure across timeframes. Engine gate (failed) | Price closes back above the 200-day moving average and the moving average slope turns positive for at least 20 consecutive trading days, reversing the confirmed downtrend. | →Stable |
| CounterA confirmed downtrend with declining moving averages can persist for extended periods even when the underlying valuation is attractive, trapping buyers who enter too early on a value argument alone. | ||
The company has posted consecutive earnings misses according to its reported results, and the average quarterly earnings surprise across the four tracked periods is negative at -5.7% — a pattern that reflects deteriorating expectations discipline and limits near-term re-rating potential. Bear case | The company beats the consensus earnings estimate in 2 consecutive quarters, confirming that the miss streak has reversed and expectations have reset to an achievable baseline. | →Stable |
| CounterEstimates may already have been cut sufficiently to make the next quarter an easy beat, and rising earnings estimates cited as a positive factor suggest analyst sentiment is already turning more constructive ahead of the next report. | ||
The stock screens attractively at a forward price-to-earnings ratio of 12.6 times with a PEG ratio of 0.78, and analyst consensus implies 25% upside to the current price — providing a meaningful valuation cushion for patient investors willing to wait for the technical and earnings picture to stabilize. Valuation breakdown | The forward price-to-earnings multiple expands above 15 times as earnings estimates firm and the trend reverses, confirming the valuation gap is closing through re-rating rather than widening through further estimate cuts. | →Stable |
| CounterAn attractive multiple can persist for years in a confirmed downtrend; further earnings misses could prompt analysts to cut forward estimates, raising the implied multiple at the current price and eroding the apparent cheapness. | ||
Free cash flow represents only 40% of reported net income — a significant gap that raises a quality concern about the reliability of earnings as a measure of the cash the business actually generates, particularly given leverage at 1.8 times debt-to-equity that requires cash service.
→StableQuality breakdown
- Expectation
- Free cash flow rises to at least 70% of reported net income for 2 consecutive reporting periods, narrowing the quality gap and reducing the risk that leverage is supported by earnings that do not fully convert to cash.
CounterThe gap between free cash flow and net income may reflect elevated capital expenditure investment rather than structural earnings quality deterioration — if so, the shortfall could normalize as the investment cycle winds down without any fundamental impairment.
The stock has triggered a death cross technical pattern, trades below all of its major moving averages, and its 200-day moving average is declining at a rate of 3.6% over the last 30 days — a confirmed downtrend that blocks disciplined new entry and signals sustained selling pressure across timeframes.
→StableEngine gate (failed)
- Expectation
- Price closes back above the 200-day moving average and the moving average slope turns positive for at least 20 consecutive trading days, reversing the confirmed downtrend.
CounterA confirmed downtrend with declining moving averages can persist for extended periods even when the underlying valuation is attractive, trapping buyers who enter too early on a value argument alone.
The company has posted consecutive earnings misses according to its reported results, and the average quarterly earnings surprise across the four tracked periods is negative at -5.7% — a pattern that reflects deteriorating expectations discipline and limits near-term re-rating potential.
→StableBear case
- Expectation
- The company beats the consensus earnings estimate in 2 consecutive quarters, confirming that the miss streak has reversed and expectations have reset to an achievable baseline.
CounterEstimates may already have been cut sufficiently to make the next quarter an easy beat, and rising earnings estimates cited as a positive factor suggest analyst sentiment is already turning more constructive ahead of the next report.
The stock screens attractively at a forward price-to-earnings ratio of 12.6 times with a PEG ratio of 0.78, and analyst consensus implies 25% upside to the current price — providing a meaningful valuation cushion for patient investors willing to wait for the technical and earnings picture to stabilize.
→StableValuation breakdown
- Expectation
- The forward price-to-earnings multiple expands above 15 times as earnings estimates firm and the trend reverses, confirming the valuation gap is closing through re-rating rather than widening through further estimate cuts.
CounterAn attractive multiple can persist for years in a confirmed downtrend; further earnings misses could prompt analysts to cut forward estimates, raising the implied multiple at the current price and eroding the apparent cheapness.
TrendMatrix Research · core thesis
Engine thesis — one sentence
DEO trades in a confirmed downtrend following a death cross signal — despite screening attractively at a forward price-to-earnings ratio of 12.6 times with a PEG ratio of 0.78, the combination of consecutive earnings misses, a free cash flow shortfall at only 40% of reported net income, and leverage at 1.8 times debt-to-equity warrants reducing exposure until both the technical and fundamental picture stabilize.
Falsifiable statement — pillar-level invalidators below. Engine-derived; not personalized advice.
Per-dimension breakdown
Quality
6.4/10data confidence 100%| Component | Sub-score |
|---|---|
| ROE | 6.6 |
| ROA | 4.8 |
| Gross margin | 8.0 |
| Op margin | 10.0 |
| Net margin | 6.1 |
| Current ratio | 5.8 |
| FCF quality | 3.2 |
| Moat | 5.1 |
| Piotroski F | 7.8 |
- ▸Earnings quality RED FLAG: 40% FCF/NI
- ▸No competitive moat
- ▸Strong Piotroski F-Score: 7/9
Growth
2.0/10data confidence 67%| Component | Sub-score |
|---|---|
| Rev growth | 1.5 |
| EPS growth | 2.6 |
- ▸Declining revenue: -4%
Momentum
4.0/10data confidence 100%| Component | Sub-score |
|---|---|
| RSI | 4.5 |
| MACD | 6.8 |
| OBV | 1.0 |
| MA position | 6.0 |
| Volume | 1.8 |
- ▸Volume distribution (falling OBV)
- ▸Below 200-MA, MA slope -3.9%/30d — confirmed downtrend
Sentiment
6.9/10data confidence 100%| Component | Sub-score |
|---|---|
| Analyst rating | 6.7 |
| Price target | 7.9 |
| erm sentiment | 6.0 |
- ▸Light analyst coverage (7.0) — signal dampened
- ▸Analyst upside: 22%
Insider
5.0/10data confidence 50%Peer rank
2.9/10data confidence 80%| Component | Sub-score |
|---|---|
| value rank | 3.3 |
| quality rank | 3.3 |
| growth rank | 0.0 |
Technical
4.1/10data confidence 100%| Component | Sub-score |
|---|---|
| bollinger | 2.9 |
| support resistance | 3.8 |
| 52w position | 4.6 |
| gap | 5.0 |
Risk (lower is worse)
7.0/10data confidence 100%| Component | Sub-score |
|---|---|
| short interest | 9.6 |
| days to cover | 7.3 |
| volatility | 6.2 |
| put call | 6.2 |
| implied vol | 6.0 |
| beta | 10.0 |
| debt equity | 3.5 |
Catalyst
4.0/10data confidence 100%| Component | Sub-score |
|---|---|
| erm | 6.5 |
| earnings history | 3.3 |
| earnings timing | 5.0 |
| surprise avg | 0.0 |
| dividend safety | 5.2 |
- ▸Earnings concerns: 2B/2M
- ▸Dividend: 404.0%
How the verdict was assembled
Engine trigger
Multiple concerning factors. Consider reducing position.
Engine technical detail
verdict_path:
L4:PATH_F_SELLPassed (6)
- INSIDER:OK
- 8K:CLEAN
- NEWS_EVENTS:NONE_RECENT
- EARNINGS_PROXIMITY:34d clear
- SEMI_CYCLE_PEAK:CLEAR
- MATERIALS_CYCLE_PEAK:CLEAR
Failed (3)
- MOMENTUM:4.0<4.5
- ASYMMETRY:1.2<1.5@spot
- DEATH_CROSS:HARD_BLOCK
Warning (0)
none
Reward-to-Risk
1.19
Upside
+6.3%
Downside
5.3%
Sizing output
AVOID
SetupRecovery — Death cross but MACD improving, RSI 53
EdgeNo clear edge — No clear edge identified
SuitabilityModerate — Balanced profile
Investment implication
The F-path SELL output reflects an overall score of 4.1 below the 5.6 soft trigger — multiple weakening dimensions accumulated rather than a single hard-floor breach. The strongest dimension ( Value at 7.7) was not enough to lift the adjusted overall above the threshold. Co-occurring failed gates ( MOMENTUM:4.0<4.5, ASYMMETRY:1.2<1.5@spot, DEATH_CROSS:HARD_BLOCK) reinforce the read. Current asymmetry R:R is 1.19 — supplementary context, not the trigger for this path.
The strongest dimensions are Value at 7.7, Risk (lower is worse) at 7.0, and Sentiment at 6.9; the weakest are Growth at 2.0, Peer rank at 2.9, and Catalyst at 4.0. The V9 engine flagged 3 failed gates, producing an asymmetric reward-to-risk of 1.19 and an engine sizing output of AVOID.
What would invalidate the thesis
Falsifying conditions — when triggered, the corresponding pillar's thesis is invalidated.
- P1Confirmed Downtrend Death Cross
Trip ifPrice closes above the 200-day moving average and the 200-day MA slope turns positive for 20 consecutive trading days.
- P2Earnings Miss Streak
Trip ifEPS surprise rises above 0% for 2 consecutive quarters.
- P3Attractive Forward Valuation
Trip ifForward price-to-earnings ratio expands above 20 times, signaling the stock no longer screens attractively valued.
- P4Fcf Quality Red Flag
Trip ifFree cash flow as a percentage of net income rises above 70% for 2 consecutive reporting periods.