Can Diageo's share price keep pushing higher?
Diageos [DGE] share price, which as of Monday was trading around 3420p, has continually trended upwards so far this year. Since January 28, the British alcohol company has added roughly 719p, or 26.6%, to its share price. The uptick has continued into the summer, with shares up 0.33% over the week commencing 10 June. In addition, the drinks firms stock is up 26.2% from its 52-week low. With a market cap of 80.51bn and a healthy P/E ratio of 28.50 (TTM), Diageos immediate prospects look strong, especially in the run up to reporting its fiscal year end results on 30 June. And yet investors, appear sheepish. Investors held by the anchoring effect  Despite Diageos share price being up a massive 22.52% year-to-date, the stock currently has an average hold recommendation among City analysts, with nine holds, six buys and one sell recommendations, according to Reuters. Diageo 1-year share price performance, CMC Markets, 18 June 2019  The skepticism surrounding the stock could be due to long-term concerns surrounding the longevity of the alcohol industry, as the shift towards the alternative drinks market continues to be fueled by the health and wellbeing trend. Or there could be a more abstract explanation: investors have become snagged in what psychologists refer to as the anchoring phenomenon. Anchoring refers to when investors begin to avoid bidding on high performing shares because  based on irrelevant financial information  they assume higher risks. High-performing stocks like Diageo that are at or near the peak of their 52-week or all-time high can often fall victim to cautious investor sentiment such as this, and decelerate as a direct result. How this often works is investors keep a companys 52-week high figure set in their mind as an anchoring figure that cannot be exceeded, and therefore doubt the stocks potential to rise higher. Jack Brumby, a contributor at Investopedia, writes of anchoring: As humans, we tend to take our time when it comes to changing our opinions in the face of new information  even when it's good news. As humans, we tend to take our time when it comes to changing our opinions in the face of new information  even when it's good news - Jack Brumby, a contributor at Investopedia  This emotional tug-of-war often ends with the new high stock drifting higher in price over the coming weeks and months. The upward trend is called post-earnings announcement drift. As the news sinks in, momentum takes over and the price moves higher. With Diageo trading close to its 52-week high, its possible that investors in the market are uncertain about whether to buy, hold or sell it. Another reason why investors are taking a cautious stance on the stock could be because of Diageos low cash flow yield. Indeed, the company has a relatively strong top line thats allowed it to generously reward shareholders in the past. Its dividend has risen 35% over the past five years while its forward-looking dividend yield for the current trading year to June 2019 sits at 2%  above the 1.75% industry average. Market cap  81.11bn PE ratio (TTM) 28.69 EPS (TTM) 119.30 Return on equity (TTM) 27.02%  Diageo share price vitals, Yahoo finance, 18 June 2019  But despite being known for its consistent cash inflows, Diageos operating cash flow yield of 3.1% (TTM) indicates its sub-standard capacity to generate cash, compared to the stock market index as a whole, accounting for the size differential, according to Simply Wall Street. This means investors are taking on more concentrated risk on Diageo but are not being adequately rewarded for doing so. Although its positive operating cash flow, and high future growth, is appealing, the low free cash flow yield is unattractive. Diageos share price hasnt exactly had consecutive month-on-month increases since the start of 2019. In March, the companys share price rose 6.8%, while in the subsequent month it rose just 4.2%. 4.2% Diageo's share price gain in April  When looking at Diageos competitors, its share price performance is marginally better. During the same time span as when the companys share price began its current upward trend from late January  in which it rose 7.8% between 28 January and 28 February  competitor Pernod Ricard added 7.4%. Whats more, Diageo shareholders are getting a decent return for their pound at 119.30p per share (TTM), which is around a 13% uptick year-on-year. Kevin Godbold, market analyst writing in Motley Fool, said of the drinks firms stock: The outlook is positive and City analysts following the firm expect earnings to grow by high single-digit percentages this trading year and next. Id be keen to make the stock a core holding in my portfolio and would look for weakness in the stock market as an opportunity to pounce on the shares.  Disclaimer Past performance is not a reliable indicator of future results. CMC Markets is an execution-only service provider. The material (whether or not it states any opinions) is for general information purposes only, and does not take into account your personal circumstances or objectives. Nothing in this material is (or should be considered to be) financial, investment or other advice on which reliance should be placed. No opinion given in the material constitutes a recommendation by CMC Markets or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. 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