What’s Behind The 20% Rally In Diageo Stock?

Diageo stock (NYSE: DEO) has increased more than 21% in the last six months and now trades close to $193 per share. Along with a  successful vaccine rollout, lifting of lockdowns, reopening of restaurants/pubs, and improving consumer sentiment, company specific factors were also responsible for the recent rally. The company has been lately witnessing robust trends in North America, its largest market. Sales in North America accelerated 12.3% in the first half of FY2021. Strong consumer demand, market share growth in the spirits category, positive category mix, and uninterrupted stock replenishments by distributors and retailers have been key drivers for the region’s growth. The momentum is expected to continue in the coming months. The company has also invested resources to leverage its e-commerce capabilities over recent months. Also, Diageo announced plans to expand its manufacturing capability by installing two can lines at a new facility in Plainfield, IL. The facility, which will be worth roughly $80 million, comes with the capacity to produce more than 25 million Ready-To-Drink cans and will be ready for commercial production by the summer of 2021.

But will Diageo’s stock continue its upward trajectory over the coming weeks, or is a correction in the stock more likely? According to the Trefis Machine Learning Engine, which identifies trends in a company’s stock price data for the last ten years, returns for DEO stock average more than 6% in the next six-month (126 trading days) period after experiencing a 21% rise over the previous six-month (126 trading days) period. What also comes out of the analysis is that patient investors will benefit, as the stock provides healthy double-digit returns to ones who wait it out for a year.

But how would these numbers change if you are interested in holding DEO stock for a shorter or a longer time period? You can test the answer and many other combinations on the Trefis Machine Learning to test DEO stock chances of a rise after a fall and vice versa. You can test the chance of recovery over different time intervals of a quarter, month, or even just one day!

MACHINE LEARNING ENGINE – try it yourself:

IF DEO stock moved by -5% over five trading days, THEN over the next 21 trading days, DEO stock moves an average of 3 percent, with a 74% probability of a positive return over the next month.

Some Fun Scenarios, FAQs & Making Sense of DEO Stock Movements:

Question 1: Is the average return for Diageo stock higher after a drop?

Answer:

Consider two situations,

Case 1: Diageo stock drops by -5% or more in a week

Case 2: Diageo stock rises by 5% or more in a week

Is the average return for Diageo stock higher over the subsequent month after Case 1 or Case 2?

DEO stock fares better after Case 1, with an average return of 3.1% over the next month (21 trading days) under Case 1 (where the stock has just suffered a 5% loss over the previous week), versus, an average return of 1.6% for Case 2.

In comparison, the S&P 500 has an average return of 3.1% over the next 21 trading days under Case 1, and an average return of just 0.5% for Case 2 as detailed in our dashboard that details the average return for the S&P 500 after a fall or rise.

Try the Trefis machine learning engine above to see for yourself how Diageo stock is likely to behave after any specific gain or loss over a period.

Question 2: Does patience pay?

Answer:

If you buy and hold Diageo stock, the expectation is over time the near-term fluctuations will cancel out, and the long-term positive trend will favor you – at least if the company is otherwise strong.

Overall, according to data and Trefis machine learning engine’s calculations, patience absolutely pays for most stocks!

For DEO stock, the returns over the next N days after a -5% change over the last 5 trading days is detailed in the table below, along with the returns for the S&P500:

Question 3: What about the average return after a rise if you wait for a while?

Answer:

The average return after a rise is understandably lower than after a fall as detailed in the previous question. Interestingly, though, if a stock has gained over the last few days, you would do better to avoid short-term bets for most stocks – although DEO stock appears to be an exception to this general observation.

DEO’s returns over the next N days after a 5% change over the last 5 trading days is detailed in the table below, along with the returns for the S&P500:

It’s pretty powerful to test the trend for yourself for Diageo stock by changing the inputs in the charts above.

E-commerce is eating into retail sales, but this might be an investment opportunity. See our theme on E-commerce Stocks for a diverse list of companies that stand to benefit from the big shift.

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