The big attraction with On Holding (NYSE:ONON) is that it has the potential to be the next Nike Inc (NYSE:NKE) or Under Armour Inc (NYSE:UA). The firm is known for its high-performance (but also comfy) running shoes that are gaining in popularity among casual wearers, regular joggers, and top runners and marathoners.
The winner of the past two Boston Marathons wore Ons. The company is going to unveil new technology used by that runner at this year’s Olympics. The shoes have a softer landing and springier liftoff, which helps performance. And it doesn’t hurt that innovation in athletic footwear has been hard to find in the sector, opening the door for a better mousetrap.
The firm’s footwear tends to be higher end, selling north of $100, which of course helps pre-tax margins (north of 25% in Q1, though it varies). While there’s plenty of opportunity in the running area alone, a big part of the story here is about how far the firm can extend its reach.
In footwear, the firm’s tennis (it designed a couple of pairs with Rodger Federer) and training offerings are catching on quick. It’s also moving into apparel (sales here up 25% in Q1) and accessories (up 43%), which are small but obviously growing nicely.
Being a Swiss firm, the numbers can be affected by currency movements, which was the case in Q1. But the currency-neutral figures were excellent (up 29%) and had management reiterating its near-term (30% currency-neutral sales growth this year, EBITDA margins north of 16%) and long-term (sales rising at a 25%-plus annual rate through 2026, with EBITDA margins north of 18% by then) guidance.
It should be noted that On is expecting to ramp marketing around the Olympics, which could affect profits. And of course, competition is always a factor. But if the top brass continues to pull the right levers, On should get much bigger over time.
Recommended Action: Buy ONON.