After seeing sales rise by 55% in 2023, On Holding (ONON -0.14%) had a strong start to 2024 as well, reporting first-quarter results on May 14. That helped Needham analyst Anna Andreeva boost her optimism for the stock in a report released this week.
Andreeva reiterated her buy rating on shares of the Swiss outdoor footwear and apparel company and raised the price target from $40 to $45 per share. That projected share price is about 25% higher than where the stock recently closed, even after it jumped when the company reported Q1 results. It would also be the stock's highest level since just after the company's initial public offering (IPO) in late 2021.
Record revenue for ONON
On Holding reported record quarterly sales that jumped nearly 30% year over year in the first quarter. Management sees at least 30% sales growth for the full year. Importantly, its direct-to-consumer (DTC) sales are becoming a larger portion of the business, and that's helping to drive gross profit margin higher.
That strong quarterly report, along with a lagging share price, is what drove the Needham analyst's optimistic take on the company. Andreeva specifically pointed to product mix gains in DTC and more efficient inventory management as trends that helped the company exceed analyst expectations in the first quarter.
She rates On Holding as a top pick thanks to the sales and profitability momentum. The company itself has maintained that it expects gross profit margin to continue to rise with a goal of at least 60%.
On Holding stock does look somewhat expensive at first glance with a forward price-to-earnings ratio recently above 40. But that doesn't seem excessive for a company growing so rapidly. Additionally, shares are valued at a price-to-sales (P/S) ratio of about 4.5 based on the company's 2024 sales estimate. If sales continue to rise, and the company hits its profitability targets, Andreeva's share price does look achievable.
