After a tricky first few weeks, On Holding (NYSE:ONON) jumped 20% in my Stocks and Shares ISA last week. I’m up just 4% since investing in early October, but my conviction in the company is growing.
In fact, I’ll buy more shares soon and aim to hold them for at least five years. Here’s why I’m bullish.
Filling the void
Founded in 2010, On is a Swiss brand known for high-quality running shoes. It experienced significant growth during lockdown as offices and gyms shut, prompting a surge in outdoor running.
In 2020/21, Nike took the ill-fated decision to prioritise sales via its own channels, reducing the volume of items shipped to wholesale partners. As the pandemic eased, On’s trainers filled the void in stores, and the brand has grown strongly ever since.
Another record quarter
The company aims to be the world’s most premium sportswear brand. As such, it doesn’t engage in discounts and won’t even be doing any for Black Friday.
To be fair, it doesn’t need to. Q3 sales rose 24.9% year on year, or 34.5% on a constant currency basis, beating Wall Street’s expectations. The gross margin increased to 65.7% from 60.6%, while earnings grew strongly.
Growth was broad-based, but Asia Pacific stood out, with sales rocketing 109%. This was the fourth consecutive quarter of triple-digit growth in the region.
Looking ahead, management raised full-year guidance for the third straight quarter, to 3bn Swiss francs (about $3.7bn). At constant currency, that would be 34% growth. That’s very impressive considering the broader industry downturn.
Innovation
One thing that sets the company apart is an obsession with innovation, which is something Nike and others have struggled with in recent years.
For example, On has developed a patented, cutting-edge manufacturing process called LightSpray. Basically, a robot arm sprays material onto a shoe mould, turning a multi-part process into a three-minute step. This running shoe has no laces or tongue, and weighs just 170g.
Runner Hellen Obiri was wearing a pair when she obliterated the women’s record in the New York City Marathon two weeks ago.
In spring/summer 2026, we will bring this championship-level technology to everyday runners for the first time with the LightSpray Cloudmonster Hyper. This is our innovation process in action, continuously and obsessively making the best possible products that push the limits of performance.
Executive Chair Caspar Coppetti
Risks
Now, there’s obviously a lot of competition in the sportswear industry. Nike and Adidas aren’t going anywhere, so On will have to keep standards exceptionally high to continue justifying charging more than these brands.
Meanwhile, around 90% of its trainers are made in Vietnam, making higher US tariffs a challenge. The rate is currently 20%, down from 46% before. But who knows where it could go in future.
Attractive opportunity
Summing up, On is a founder-led company taking market share with high-performance products and a premium brand. Sales are soaring, margins are climbing, and the shares trade at just 21 times 2027’s forecast earnings (significantly cheaper than slow-growing Nike).
| On | Nike | |
|---|---|---|
| Market cap | $13.8bn | $91.5bn |
| Gross margin | 62% | 42% |
| Adjusted EBITDA margin | 18% | 10% |
| Full-year revenue growth forecast | +34% (cc) | +1% |
| Forward price-to-earnings ratio | 28 | 38 |
Meanwhile, its still early days for its apparel business, and management plans to selectively increase the store count over the next few years.
With the stock down 35% since May, I think this is an attractive dip-buying opportunity to consider seizing. And I plan to do so.
