Shares of running-shoe company On Holding (ONON 2.66%) are having quite a year, rising 78% year to date as of this writing. But one Wall Street analyst sees even more upside ahead.
Stifel analyst Jim Duffy recently raised his price target for On stock to $40 per share, according to WallStreetZen. This implies about 30% additional upside for investors.
What do analysts see in On?
Duffy sees opportunity for On to grow its revenue and to become more profitable. And to his point, the company is clearly doing both right now, as the chart below shows.
ONON Revenue (Quarterly YoY Growth) data by YCharts
For 2023, On's management expects to grow net sales by 46%. What's impressive about this growth is that much of its business is direct-to-consumer, despite its being a relatively obscure brand. And with On gaining greater representation in the running community, this brand is becoming better known, which could continue to drive direct-to-consumer sales.
Direct-to-consumer sales have better profits than On's wholesale channels. Therefore, growth in this area could lead to the better profitability that Duffy predicts. It's a big reason why the company's operating income has basically doubled in 2023 compared with the same period of 2022.
I personally agree with the premise of Duffy's argument -- On is poised for growth and improvements on profitability. The only cautionary note that I'd add is that On does trade at a premium price, especially for a shoe stock. Those who buy shares today aren't necessarily getting a good deal; rather, they're betting that On can become one of the largest shoe brands in the world over the next decade or so.
That could indeed happen for On -- management expects to double sales from 2023 through 2026 alone, which would be spectacular. But investors will want to make sure they've adequately considered what could happen to the stock if long-term growth falls short of expectations.
