On the face of it, Diageo does not appear to offer good value for money. For instance, it has a price to earnings (P/E) ratio of 19.6 and, with the FTSE 100′s P/E ratio being 15.9, it seems to be overvalued on an absolute and relative basis.
However, when you compare it to its nearest peer, SABMiller, it seems to make much more sense as an investment. For example, SABMiller trades on a P/E ratio of 22.7 and this is a full 16% higher than Diageo’s rating, which indicates that there is considerable scope for a narrowing of this valuation gap moving forward
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