Shares of newly public company On Holding (ONON 2.92%) were up nearly 21% today as of 11:40 a.m. EST. The Swiss running shoe company released an exceptional third-quarter 2021 earnings report, the first since the initial public offering in September. Revenue increased 68% year over year to 218 million Swiss francs ($234 million). Sales through the first nine months of 2021 are now up 77% compared to 2020 to 534 million Swiss francs ($575 million).
Shares of On are now up 27% since they began trading on stock exchanges just a couple of months ago.
There is ample investor optimism surrounding On Running. Besides its rapid growth rate, the company generated a nearly 60% gross profit margin on shoes sold so far this year, an enviable rate for a shoe and apparel company. And adjusted EBITDA (earnings before interest, tax, depreciation, and amortization) margin was 16% through the first nine months of 2021.
These lucrative profit margins come in spite of On spending heavily to support its global expansion, not to mention supply chain issues. Factories in Vietnam have been closed this year due to the pandemic, and higher air freight expense has weighed on the company as well.
The numbers are impressive, but I for one am still exercising caution with this shoe stock. Valuation is only one concern. The nearly $14 billion market cap values On at more than 18 times expected 2021 revenue.
The premium price tag could cause some short-term fits for On as its torrid growth moderates. Supply constraints and factory closures will take a bite out of the company's performance during the final months of this year. Management's full-year guidance calls for growth of only 67% over 2020, down sharply from the 77% rate notched through the end of September (and implying a year-over-year growth rate far below 67%). Adjusted EBITDA margin is also expected to dip back down to 13%, implying the company sees thin profitability in the fourth quarter.
Nevertheless, investor optimism isn't totally misplaced either. On expects supply chain impacts to be temporary and provided a rosy initial outlook for 2022. Management expects sales to be at least 960 million Swiss francs ($1.03 billion), implying 35% growth next year, and adjusted EBITDA margin should be 13% again.
Clearly, On is building momentum in the shoe industry marathon and is worth keeping on your radar at the very least.