What happened

Shares of shoe company On Holding (ONON -4.82%) sank on Tuesday after the company reported its latest quarterly financial results. As of 10:30 a.m. ET, On stock was down about 10%.

So what

On Holding went public in 2021, and the shoe company quickly captured the attention of investors with its impressive revenue growth. That growth was on full display once again in the first quarter of 2021. In Q1, On generated record net sales, growing 78% year over year in its local Swiss franc currency. This far surpassed its revenue growth guidance of 61%.

Converting to dollars, On had net sales of roughly $470 million in Q1.

Turning to the bottom line, analysts had expected On to turn in a net loss, according to estimates from MarketWatch. However, profitability improved substantially for the company in Q1. Its gross margin hit 58.3%, down slightly from 58.5% in the previous quarter but up from 51.8% in the prior-year period.

Moreover, On had a net profit margin of 10.6% in Q1, up from its margin of 6.1% in the same quarter of last year. So the company is clearly performing very well on the top and bottom lines.

Now what

On's management had guided for full-year 2023 net sales of 1.7 billion Swiss francs, or about $1.9 billion U.S. However, today, it raised its guidance to 1.74 billion Swiss Francs, which would represent about 42% year-over-year growth.

On surpassed expectations, and the future growth rate is strong. Yet the stock fell today. In my opinion, this could be a case of acknowledging that this is a good business, but it's not necessarily a great time to start an On investment.

To be clear, 42% growth is spectacular for On. However, with a market capitalization of roughly $10 billion, it traded at over 5 times forward sales, which is pricey for a shoe stock. Moreover, prior to today's drop, On stock was already up about 76% year to date. So investors sitting on strong gains might be selling today to lock in profits while things are still going well for the company.