By Carol Ryan

Alcohol companies have been encouraging people to drink responsibly for years. Unfortunately for their stocks, the message appears to be getting through.

Shares in Casamigos tequila-owner Diageo and rival Pernod Ricard, which makes Jameson whiskey, are now trading at tobacco-like valuations. Things aren't rosy in the spirits business. But unless you believe alcohol is heading for the same scrap heap as traditional cigarettes, this could be a chance to pick up the stocks cheaply.

The U.S. is one of the most important spirits markets in the world. Lately, though, Americans have been drinking less. The volume of spirits sold has declined for four straight years, data from alcoholic beverage analytics firm IWSR shows.

Affordability is part of the problem. People aren't drinking as much when they're out socializing because of how expensive it has become. Bernstein analysts estimate that prices for spirits in bars and restaurants have risen 29% over the past five years, which is higher than the overall rate of inflation. In many U.S. cities, $20 cocktails are becoming the norm as bars try to offset higher labor and input costs with eye-watering margarita bills.

But consumers aren't opting to drink at home instead — they are cutting back altogether. This is unusual because at-home drinking looks like a bargain compared with just about everything else in the U.S. economy. Prices for spirits bought at the grocery store or liquor store are up only 9% in five years.

Drinkers' behavior today is quite different from what it was in the aftermath of the global financial crisis. Spirits volumes continued to grow in 2009 and 2010, although more slowly. People traded down to cheaper brands and socialized at home to save money, but they didn't drink any less.

A growing focus on wellness seems to be changing attitudes toward alcohol. Younger people are drinking more moderately than older generations. Gen Z are likely to have one or two drinks and go home early, or to socialize in ways that don't involve alcohol at all. They are health conscious, and popular tracking devices such as Oura rings and Fitbits have made the downsides of alcohol, like disrupted sleep, clearer.

Moderation is spreading to older generations, too. The share of Americans who say they drink alcohol hit an all-time low of 54% in 2025, according to a Gallup poll.

Add GLP-1s to the mix: People on weight-loss drugs not only lose their appetite for food but also drink less. Consumers seeking a legal buzz also have other options these days. They can smoke a joint or drink a THC-infused beverage in states that have legalized marijuana. Low-alcohol and no-alcohol drinks are also growing much faster than the overall alcohol industry.

There is a conflicting signal coming from one corner of the market, however. Sales of ready-to-drink cocktails, which are bar-quality cocktails in a can, are booming. The category is growing by 20% to 30% a year in the U.S., according to Mitch Collett, an analyst at Deutsche Bank Research.

Gen Z consumers like RTDs for their convenience and affordability. A 12-pack of Cutwater Spirits margaritas costs around $25 at Walmart. Making a margarita from scratch would involve an upfront investment of buying multiple bottles of spirits and mixers.

"The category is telling us something about younger consumers...Gen Z wants to drink," says Bernstein analyst Nadine Sarwat. She adds that the outperformance of RTDs and smaller pack sizes suggests that at least part of the drop in volumes is caused by squeezed budgets, rather than abstinence.

The publicly traded distillers have been slow to jump on the RTD trend, which is dominated by beer companies and privately owned spirits companies. Rapidly growing Cutwater Spirits is owned by Budweiser brewer AB InBev, for example.

Distillers might be reluctant to come up with a rival product because canned cocktails have lower profit margins than large bottles of spirits. Brewing companies, on the other hand, love the category because it is more lucrative than beer and they already have facilities to can beverages.

Another dilemma is that alcohol trends increasingly go through boom and bust cycles. Craft beer and hard seltzers fizzled out after a few years of explosive growth, for instance. Traditional distillers, who like to build brands for the long-term, could invest heavily in RTDs only for the fad to pass in a few years.

Distillers' shares used to trade at a big premium to tobacco companies, especially after the U.S. Food and Drug Administration announced plans for a crackdown on cigarettes in 2017. Lately, the valuation gap has nearly vanished.

As a multiple of expected earnings, Pernod Ricard's shares are now cheaper than those of British American Tobacco and Marlboro owner Altria. Diageo's earnings multiple is languishing at 2009 levels. Jack Daniel's owner Brown-Forman is faring better. Its shares trade at 16 times projected earnings — although this is still significantly cheaper than Philip Morris International.

The outlook for spirits companies in the U.S. is very murky, but the bad news is priced in. Companies like Diageo that have a big presence in emerging markets such as India are still seeing healthy demand elsewhere. Later this summer, the company's new boss will announce a fresh strategy to get its brands growing again, which is expected to include a plan to launch new products at more affordable prices.

Maybe the message about moderation is sound advice for investing in alcohol, too. Now isn't the time to binge on spirits stocks. But they can be part of a balanced mix, especially at these prices.

Write to Carol Ryan at carol.ryan@wsj.com