Shares of On Holding AG ONON have gained 12.2% in the past month compared with the industry’s 6.7% growth. The recent stellar performance puts it ahead of competitors like American Outdoor Brands, Inc. AOUT, Acushnet Holdings Corp. GOLF and Academy Sports and Outdoors, Inc. ASO in terms of price performance in the past month.
ONON is riding on the success of its multi-channel strategy, which has effectively captured global brand momentum and translated it into strong sales growth across all channels. The company is witnessing increased demand for full-price products among wholesale partners, including key accounts and specialty retailers, both online and in physical stores. Although e-commerce experienced softer demand early in the second quarter, growth quickly rebounded in the latter half, leading to record website traffic. The global launch of ONON's first commercial app has outperformed expectations in downloads and transactions, with a high share of apparel sales comparable to its retail stores.
Image Source: Zacks Investment Research
Technical indicators are supportive of ONON’s strong performance. The stock was recently trading at $44.36 on Monday, above its 50-day moving average of $40.82 and the 200-day moving average of $34.74. This technical strength reflects positive market perception and confidence in ONON's financial health and prospects. So, should investors pour more capital into On shares now? Let’s take a closer look.
Image Source: Zacks Investment Research
Key Fundamentals Supporting ONON's Stock Growth
Strategic Partnerships and Brand Building: On's strategic partnerships with high-profile figures like Zendaya, FKA Twigs, Iga Swi??tek and Roger Federer have significantly boosted its brand visibility and credibility. The company’s presence at major events, such as the recent Olympic Games in Paris, has further solidified its reputation as a global premium performance sportswear brand. These partnerships help On tap into new markets and build a more diverse and engaged consumer base.
Additionally, On's innovative marketing campaigns, such as the air tennis tournament between Zendaya and Roger Federer, have successfully captured the public's imagination, resulting in millions of media impressions and a strong increase in brand awareness.
Innovation as a Driver of Long-Term Growth: On's commitment to innovation is a major factor contributing to its sustained growth. The launch of the LightSpray technology — which allows for the creation of ultralight performance shoes in a highly efficient, one-step process — is a testament to its commitment. The groundbreaking technology has garnered significant media attention and has been validated by exceptional athletic performances, such as Hellen Obiri’s victory in the Boston Marathon.
Also, strong growth across running franchises, including the Cloudmonster, Cloudsurfer and Cloudrunner, bode well. The focus on innovation not only drives short-term sales but also sets the stage for long-term success by improving sustainability and expanding product offerings.
Growing Global Presence and Market Share: On's global expansion strategy is paying off, with strong sales growth across multiple regions. The company has reported strong performance in the Americas, EMEA and APAC regions, with significant growth rates and increased market share. New retail stores in key locations, such as New York and Hong Kong, have exceeded expectations, showcasing the brand's growing global footprint.
The expansion of its direct-to-consumer (D2C) channel has also been successful, contributing to a 28.1% year-over-year increase in net sales in the second quarter of 2024. This multi-channel strategy allows On to capture and convert its brand momentum into continued sales growth, ensuring sustained profitability.
What May Pull Back ONON Stock?
Competitive Pressures: The sportswear and performance market is highly competitive, with established giants like Nike, Adidas, and Under Armour dominating the space. Although On has made strides in expanding its product range and market presence, its reliance on its unique approach and niche innovations may not be sufficient to carve out a significant market share in the long term.
Additionally, the company's ongoing expansion efforts, such as opening new flagship stores and launching new products, require substantial capital investment. With a crowded marketplace and high entry costs, ONON risks overextending itself in pursuit of rapid growth, which could impact its profitability and financial stability.
Overemphasis on Marketing and Partnerships: On has invested significantly in marketing and brand partnerships. While these efforts have raised brand visibility, they may not translate into sustainable sales growth. The company's strategy seems overly reliant on celebrity endorsements and high-profile campaigns to drive short-term brand awareness. Such tactics may inflate its marketing expenses without delivering the long-term profitability that investors seek.
ONON’s Rising Valuation & Estimates
ONON is trading at a premium to the industry. With a forward 12-month price-to-earnings of 40.66X, which is well above the industry average of 27.25X.
Image Source: Zacks Investment Research
The Zacks Consensus Estimate for the company’s 2024 earnings per share (EPS) increased from 95 cents to 99 cents in the past 60 days. During the same period, the consensus mark for 2025 EPS moved up from $1.10 to $1.14.
Image Source: Zacks Investment Research
Investment Verdict: Hold for Now
Given ONON's strong recent performance, innovative product pipeline and expanding market presence, the stock shows promise for continued growth. However, the competitive landscape, high marketing expenses and premium valuation suggest caution. For investors already holding ONON stock, it may be wise to maintain their position and monitor the company’s ability to translate its strategies into sustainable long-term growth. For new investors, it might be prudent to wait for a more favorable entry point.
ONON currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
5 Stocks Set to Double
Each was handpicked by a Zacks expert as the #1 favorite stock to gain +100% or more in 2024. While not all picks can be winners, previous recommendations have soared +143.0%, +175.9%, +498.3% and +673.0%.
Most of the stocks in this report are flying under Wall Street radar, which provides a great opportunity to get in on the ground floor.
Acushnet (GOLF) : Free Stock Analysis Report
American Outdoor Brands, Inc. (AOUT) : Free Stock Analysis Report
Academy Sports and Outdoors, Inc. (ASO) : Free Stock Analysis Report
On Holding AG (ONON) : Free Stock Analysis Report
To read this article on Zacks.com click here.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
