We came across a bullish thesis on On Holding AG (ONON) on Long-term Investing’s Substack by Sanjiv. In this article, we will summarize the bulls’ thesis on ONON. ONON Technologies, Inc. share was trading at $50.40 as of Oct 7th. ONON’s trailing and forward P/E were 91.97 and 45.05 respectively according to Yahoo Finance.
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On Holding AG (ONON) is a Swiss company that makes high-performance shoes, sports clothing, and accessories. It was started in 2010 by former triathlete Olivier Bernhard, along with Caspar Coppetti and David Allemann. The company is famous for its innovative design and unique CloudTec® cushioning technology. ONON aims to provide top-quality products for running, outdoor activities, and everyday use, combining Swiss engineering with a focus on sustainability by using recycled materials and vegan leather.
Since its early days, ONON has grown quickly, now operating in over 70 countries and selling through more than 9,800 stores. The U.S. is its biggest market, where it holds a 6.6% share in the performance running shoe category. The company outsources most of its manufacturing to Vietnam and Turkey, but all products are designed and tested in Switzerland. ONON’s strategy includes partnering with athletes like Olympic champion Nicola Spirig and tennis star Roger Federer.
ONON sells its products from nearly its Wholesale channel where it has nearly 10,000 partner stores, running shoe specialists, and department stores and its DTC channel include both physical stores and online platforms, offering a more direct and engaging experience for customers. Both channels have shown significant growth, with Wholesale growing at a compound annual growth rate (CAGR) of 49.7% over the last five years and DTC growing faster at 72.4%, indicating that DTC is expected to be a major driver of future growth.
The company operates in a highly competitive market against well-known brands like Nike, Adidas, Puma, Under Armour, Hoka, and Brooks. Despite the strong competition, ONON is growing faster, reflecting the strong customer appeal of its premium-priced products. ONON’s success is notable in a challenging environment for consumer brands, especially as competitors like Nike and Puma face difficulties from economic factors.
ONON has seen a year-over-year revenue increase of 28.5%. The company has been making a profit for the past two years and has had positive operating cash flow since 2021. In 2023, it became free cash flow positive for the first time. Its gross margins are solid at 60% while operating margins are low due to high marketing costs which are expected to get better as the company grows.
ONON presents a good opportunity driven by its growth strategy focuses on expanding into new shoe categories, apparel, and accessories while increasing its presence in key markets like the U.S. and Asia-Pacific. The DTC channel is a major driver of future growth, with a CAGR of 56.2%, outperforming the wholesale channel. The company is also addressing supply chain challenges that have limited U.S. sales. ONON’s innovative approach, exemplified by new technologies like LightSpray, sets it apart in the competitive athletic footwear and apparel market. Its premium pricing and strong brand demand indicate the potential for sustained growth, even as the company expands into new product categories and regions. Although the current valuation reflects much of this growth the stock seems expensive right now thus investors should wait for a better price.
On Holding AG is not on our list of the 31 Most Popular Stocks Among Hedge Funds. As per our database, 34 hedge fund portfolios held ONON at the end of the second quarter which was 34 in the previous quarter. While we acknowledge the risk and potential of ONON as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than ONON but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article was originally published at Insider Monkey.