A Bull Market Is Coming: 1 Hot Shoe Stock Up Nearly 60% in 2023

While all eyes have been on the shotgun wedding between Swiss bank giants UBS and Credit Suisse, another Swiss company has been making far better headlines: On Holding (ONON 2.66%), better known as On Running.

The fast-moving shoe company just crossed the finish line for its 2022 fiscal year, and in top form. Revenue surged nearly 92% higher year over year in the fourth quarter, and On is making progress toward turning a fit profit.

Shares are back on the rise after On stock hit a wall: the bear market of 2022. The stock rallied nearly 60% so far in 2023. Is it too late to buy as a new bull market gets underway?  

Entering 2023 with a best-ever lap time

On's epic conclusion to 2022, featuring a near-doubling of sales in the final quarter, capped off quite the year. Full-year 2022 sales came in at 1.22 billion Swiss francs ($1.32 billion, as of exchange rates on March 22, 2023), up 69% from 2021.

Though net income was bumpy from one quarter to the next in 2022 (including a net loss in Q4), the full-year bottom line ended in the black at 57.5 million Swiss francs ($62.5 million). That's not an exceedingly high profit, but bear in mind the company is in intense training mode right now (read: spending cash) as it continues to try and expand its worldwide footprint.

On is a newer company (founded in 2010), and its running shoes were an early pandemic hit when outdoor exercise gear had a heyday. But while some consumer discretionary spending on apparel slipped in the last year, On caught a second wind. North America sales continued to race higher, but On is also turning into a hit in new markets it's entering as well. 

Data source: On Holding.  

Can these premium kicks keep sprinting?

I'll admit, the last time I covered On in depth (shortly after the 2021 IPO), I put my interest in owning the stock on hiatus. I've occasionally revisited it when revamping my list of top sneaker stocks. However, a very high valuation after the IPO gave me pause.

Though the stock has had a checkered run since the company became a public concern, the business itself handily beat all my expectations. After all, initial 2022 guidance issued a year ago was for total sales of 990 million Swiss francs. I'd say the actual 1.22 billion result is pretty good.

But it's the future that matters far more than the past. And what is this premium running shoemaker expecting now? Year-over-year sales growth of 61% in Q1 2023, and full-year 2023 sales of "at least 1.7 billion" Swiss francs -- implying growth of 39% over this past year.  

Adjusted EBITDA (earnings before interest, tax, depreciation, and amortization) profit margin is expected to be 15%, up from 13.5% in 2022. Management does not provide any guidance for unadjusted profit.  

In other words, On is only just beginning to reach positive net profit, and profit will likely remain thin in 2023 as the company continues spending to support its rapid expansion around the globe. That makes this a spendy stock to match the spendy running kicks On produces. Based on one-year forward analyst expectations, On stock trades for around 38 times earnings per share.  

I'm still a bit reluctant to pour a significant amount of investment dollars into this top shoe brand. Nevertheless, after a great year and a great outlook for 2023, I think it's time to put this stock back on my watch list. If I do buy, I'll do so in small chunks or employ a dollar-cost average plan to help mitigate volatility in this high-growth shoe business.