Summary:
On Holding (NYSE: ONON) is a Swiss footwear and sportswear company that has experienced significant fluctuations in its stock price since going public. Despite facing challenges from rising rates and macro headwinds, On Holding has positioned itself as a high-growth brand with a proprietary cushioning technology called CloudTec. The company has gained traction in the market, driven by endorsements from athletes and strategic partnerships. With a focus on expanding its direct-to-consumer channel, targeting high-end consumers, and maintaining full-price sales, On Holding has achieved impressive revenue growth and profitability. Analysts predict that the company will continue to thrive and generate substantial returns for investors. Although On Holding’s stock may face pressure in a volatile market, its unique positioning and growth prospects make it an attractive investment opportunity.
The Revolutionary Journey of On Holding
On Holding, the Swiss footwear and sportswear maker, has captivated investors with its innovative approach. Founded in 2010 by Olivier Bernhard, a former Swiss Ironman champion, the company introduced a groundbreaking cushioning technology called CloudTec. Unlike traditional shoe designs, On’s CloudTec technology creates moving “cloud” cushions that provide maximum comfort and support to runners. This unique feature has set On apart from its competitors and contributed to its success.
Initially rejected by industry giant Nike, Bernhard’s determination led him to partner with David Allemann and Caspar Coppetti to establish On Holding. The company patented its CloudTec technology and launched its high-performance Cloudracer shoe in 2012. On gained significant attention when Swiss triathlete Nicola Spirig embraced and promoted its Cloudracer shoes. The endorsement from Spirig, along with support from Swiss tennis legend Roger Federer, who became a major shareholder in the company, further solidified On Holding’s position in the market.
Impressive Growth and Market Expansion
On Holding has experienced remarkable growth in revenue across multiple regions, including North America, Europe, and the Asia Pacific. Despite challenging macro, currency, and geopolitical headwinds, the company has consistently generated robust sales figures. In 2022, On Holding reported a 59% increase in total sales, and the company anticipates a 46% growth rate for the full year of 2023.
One of the key factors driving On Holding’s growth is its direct-to-consumer (DTC) channel. By expanding its DTC sales, the company aims to enhance profitability and reduce reliance on wholesale retailers. In the first nine months of 2023, On Holding’s DTC sales grew by an impressive 57%, accounting for 35% of its total revenue. Furthermore, On Holding targets high-end consumers who value quality and are less affected by economic downturns. The company’s focus on premium pricing, without heavy reliance on promotions and discounts, has helped maintain a strong brand appeal.
The Path to Profitability
On Holding, which initially faced challenges in achieving profitability, has turned the tide in recent years. In 2022, the company generated a net profit of 57.7 million Swiss francs ($67.6 million), and in the first nine months of 2023, it recorded a net profit of 106.3 million Swiss francs ($124.5 million). On Holding attributes its profitability to the growth of its DTC business, its premium positioning, and its emphasis on full-price sales. The company expects to achieve a gross margin of at least 59% for the full year, surpassing industry leader Nike.
Analysts project that On Holding will continue to deliver impressive financial results, with an estimated net income CAGR of 99% from 2023 to 2025. This anticipated growth rate positions On Holding as an exciting investment opportunity, despite its current stock price drop.
The Buying Opportunity
On Holding’s recent stock sell-off provides a unique opportunity for investors to enter the market at an advantageous price point. With its robust growth potential, niche positioning, and strong financial performance, On Holding has the potential to outperform its competitors. While its stock may face short-term pressure due to market volatility, patient and discerning investors can see long-term gains from investing in On Holding.
It is important to note that The Motley Fool Stock Advisor, while recognizing the potential of On Holding, did not include it in its list of top 10 stocks for investors. However, the exceptional growth trajectory and market positioning of On Holding make it an intriguing choice for investors looking to capitalize on the future of footwear and sportswear.