It’s pretty rare to see nearly nine out of 10 stock market analysts have a favourable rating on a share, especially one that’s not particularly well-known. Yet On Holding (NYSE:ONON) currently holds that honour.
Of the 27 analyst teams covering the stock, 24 rate it as a Strong Buy or Buy (or their jargony equivalents like Outperform or Overweight). Two rate it a Hold, while a solitary broker has it down as a Strong Sell (there’s always one!).
Their 12-month share price targets average out at $66.81, which is 57.5% above the current share price of $42.39. As always, I should point out that these are just estimates, not predictions.
Nevertheless, it’s an emphatically bullish consensus. So let’s take a closer look.
Premium sportswear brand
For those unfamiliar, On is a Swiss sportswear company. As is the way with many companies from Switzerland (think Rolex and Breitling watches or Lindt chocolate), this is a premium brand. It’s associated with high-quality running trainers.
However, the firm is growing its apparel business rapidly and has big ambitions. On the Q2 earnings call, co-founder and Executive Co-Chairman David Allemann said: “Our vision goes far beyond footwear. Our apparel business is expanding very fast and with it, our relevance as a full sportswear brand…The seed for the most premium global multi-sports brand is planted.”
The company’s Q2 net sales jumped 32% year on year — or 38.2% at constant currency — to 749.2m Swiss francs (around $830m). Apparel sales surged 75.5% at constant exchange rates.
Unlike many brands, On is having a lot of success in Asia, where net sales rocketed 111%. And sales even more than doubled in Greater China. This part of the world has been a slog for many brands recently, but seemingly not for On.
The company reported adjusted EBITDA of 136m Swiss francs, translating into an 18.2% adjusted EBITDA margin, up 220 basis points. The gross margin is very strong at 61.5%, reflecting its premium pricing. For context, Nike‘s gross margin is roughly 43%.
Q3 is also off to the races, with July being the strongest month in the brand’s history, according to management. Also in that month, Iga Świątek won Wimbledon, thrashing Amanda Anisimova 6-0, 6-0 while wearing On’s sportswear. That can’t have done the brand any harm!
Issues
That said, Q2 wasn’t perfect. The firm missed analyst expectations for adjusted earnings per share, which it blamed on a weak US dollar versus the Swiss franc. So currency fluctuations can negatively impact the bottom line.
Also, US tariffs are a headache because the firm manufactures in Asia. Yet, so far, it has been able to absorb these quite comfortably due to its premium brand and pricing power. But they add sector uncertainty.
I’m buying
The fact that the company’s growth is being achieved against a backdrop of extremely weak consumer spending is very impressive.
I’m tempted to say that what we’re witnessing here is the emergence of a young Nike. But there are differences, because On says it’s positioned “somewhere between a sports brand and the fashion brand“. It’s building towards a “high-margin profile” business.
Down 33% since January, the stock is trading at 27.5 times forward earnings. At this valuation, I think On is worth considering, and I’m keen to buy it for my own portfolio.
