On Holding stock has done well after bottoming at $15.6 in 2022. It has soared to $56, giving it a market cap of over $18 billion and making it one of the fastest-growing brands in the footwear and apparel industries. ON has done better than other popular brands like Nike, Adidas, and Under Armour. So, is ON a good investment?
On is a big disruptor in footwear and apparel
On Holding is one of the fastest-growing companies in the apparel and footwear industries as its revenue soared from $276 million in 2019 to over $2.55 billion in the trailing twelve months.
It has done well as its brand has continued growing as its peers like Nike and Under Armor struggled. For example, it took advantage of Nike’s decision to scale back its presence in top retailers to gain market share.
The most recent numbers showed that On Holding’s revenue rose by 32.3% in the third quarter to CHF 635.8 million. This growth was mainly due to its direct-to-consumer channel, which now accounts for about 38% of its total sales.
On has also achieved more, as its gross margins have continued growing and now sit at near 61%, a big number considering that Nike’s margin is 44%. Adidas has a gross margin of 49%, while Under Armour has 47%.
On Holding’s higher margin is due to the ongoing focus on the DTC and lack of discounts, as other companies have done.
The company’s growth happened because of the ongoing demand, especially after the Paris Olympics and its partnerships, including with Zendaya. This explains why the company boosted its guidance, as it expects its net sales growth to be about 32%, an impressive figure for a company that has been in business since 2010.
Valuation and earnings ahead
The next key catalyst for the On Holding stock will be its financial results, which comes out in March.
Analysts expect the data to show that the fourth-quarter revenue rose to $593 million, up by 33% from a year earlier.
The annual revenue estimate is expected to be $2.3 billion, followed by $2.95 billion this year. That implies an annualized growth rate of 28.5% and 27.9%, respectively.
On Holding has also become profitable as its EPS is expected to move to $0.8 from $0.35 in 2023.
Many investors are concerned that On Holding, with a market cap of over $18 billion, is highly overvalued. In contrast, Under Armour, another large brand in the industry, is valued at over $3 billion.
Nike has a forward price-to-earnings ratio of 33.3, while On Holding has a multiple of 83.3. This valuation can be justified because of On’s strong revenue and profitability growth.
Read more: On Holding stock is doing well; but does ONON have more upside?
On Holding stock price analysis
ON stock by TradingView
The daily chart shows that the ON stock price has been in a strong uptrend in the past few months. It has formed an ascending channel that connects the highest and lowest swings since December 23.
The On Holding stock has retested the lower side of the rising channel and is above the 50-day moving average. Therefore, the stock will likely bounce back, with the next point to watch being the all-time high of $64. A drop below the lower side of the channel at $54.55 will invalidate the bullish view.
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