Shares of shoe company On Holding (ONON 2.66%) crumbled on Tuesday after the company reported financial results for the fourth quarter of 2023. The company's numbers were in line with management's guidance but missed Wall Street's expectations. That's why On stock was down 14% as of 11 a.m. ET.
A record year for On
On's management provided guidance for sales, gross profit margin, and margin for adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA). Back in the third quarter, management said investors could expect full-year net sales growth of 46%, a gross margin above 59%, and an adjusted EBITDA margin of 15% at least. The company's financial results met guidance on all three counts.
For 2023, On grew its net sales by nearly 47%, its gross margin was almost 60%, and its adjusted EBITDA margin was over 15%. However, analysts had expected a little more top-line growth in Q4 as well as higher profits.
Moreover, On's financial guidance for the upcoming first quarter was lower than what Wall Street hoped. This also contributed to the stock's drop today.
Is Wall Street missing the big picture?
I can't help but believe that Wall Street is overlooking some important nuance here. In 2023, On grew as expected. But this is a Swiss company and the U.S. dollar is weaker relative to the franc. Therefore, the company's results when converting into dollars fell short. But this is a currency issue, not a business issue.
Looking ahead to the first quarter, On's management believes the currency headwind will still be a factor. But it hasn't deviated from its long-term target of at least 26% annualized sales growth through 2026.
On surpassed $2 billion in revenue in 2023 when converted to dollars, meaning it now trades at around 5 times sales -- a much more reasonable valuation than it's had in the past. With management expecting sales to double over the next three years, this is a stock to add to a watch list today.
