S&P 500 equities are up 9% year-to-date, making discounts harder to uncover. The relatively new stock On Holding (NYSE: ONON) is down 38% since its highs. It's rising this year, but investors should consider this high-growth stock.
Why On is appealing to buy In The Wall Street Journal, On's CloudTec running shoes seem like a "mouth in dire need of braces," but you may have seen them in your neighborhood or already like them. Swiss-based On has a strong and dedicated following of affluent customers willing to pay premium prices for its comfy shoes. It also makes a comprehensive line of athletic apparel at pricing comparable to or slightly more than Lululemon Athletica.
Several factors make On a no-brainer stock right now. At the convergence of low brand presence and strong growth, it has enough chance to keep growth rates high as it expands into new regions. Its upmarket target market, premium pricing, and high full-price sales rate make it profitable amid tough economic times.
Sales rose 47% overall and 55% currency-neutral in 2023, exceeding expectations. It exceeded 60% gross margin in the fourth quarter and aims to sustain that profitability in 2024. Management expects currency-neutral sales to rise 30% in 2024. Despite not being profitable under GAAP, On's net income rose 38% in 2023.
It is new in several markets. The company's approach is to build brand awareness and community, expand markets through multichannel, innovate with product development, and scale efficiently.
Brand awareness matters. Low awareness rates in rich U.S. cities like New York and Dallas are 7% and 12%, respectively. France has 6% and Australia 4%. It's little known in many locations, but where On is active, it's very popular. That has resulted to amazing growth rates, such as a 103% CAGR in China (between the first half of 2021 and the first half of 2023) and a 699% CAGR in the UAE.
On promotes itself through celebrity endorsements. The company sponsors defending NYC Marathon winner Helen Obiri and tennis winners Iga Swiatek and Ben Shelton. Tennis legend Roger Federer invested early because he loves it. This year, On will launch new styles for its best-selling running shoes to boost engagement and growth. All of its sports shoes are signature. It uses tech and automation to scale profitably.
Is On stock cheap? Value, not price or price change, determines a deal. Even valuation is relative; a fast-growing stock is worth more than a slow-growing one. On stock's price-to-sales ratio is 6.4, which isn't cheap but may be appropriate for a high-growth business. It may not be a bargain, but it has huge growth potential in the coming years.
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