On Holding (ONON -0.80%) stock dropped 19% in February according to data provided by S&P Global Market Intelligence. There wasn't any news specific to On in the month, but there have been market fears about tariffs, and stocks often fall in anticipation of an upcoming earnings report. Spoiler alert: The report, released yesterday, was outstanding.
On your marks
On is a Swiss-based athletic wear company that's competing in the premium space. Its original Cloud-tech footwear has a distinctive sole that's meant to provide incredible comfort, and it's establishing a strong global brand presence.
It's gotten an extremely positive reception, and it's growing quickly. In the 2024 fourth quarter, sales increased 40% year over year (currency neutral), driven by a 48% increase in direct-to-consumer sales. Although it's known for its footwear, apparel and accessories are growing at an even higher rate: Shoe sales increased 39% year over year in the quarter, while apparel increased 83% and accessories increased 86%. That's a great indication that customers are loving the brand. It has a curated list of celebrity endorsers, starting with Roger Federer, who is an investor in the company, and its partnership with Zendaya has put in on the map with a general audience.
As a premium label, it charges higher prices, and that's trickling down to the bottom line. On has an unmatched gross margin of 62.1%, up from 60.4% the previous year. Net income was up 435% in the quarter.
Performance surpassed expectations, and management is guiding for sales to increase 27% in 2025. It's expecting gross margin of 60.5% for the full year, just a bit lower than 60.6% in 2024.
Growth started to decelerate in the inflationary environment, and it may stay at these levels. But it has a massive opportunity as it sets up shop and gets its name out, and it has established that it can generate loyalty once it does. That's a very compelling combination from an investing standpoint.
Ready, set, go
On stock had been getting quite expensive, but it's looking a lot more palatable at the current price. Even though it jumped after earnings yesterday, it's still down 8% year to date, and it's trading at a forward one-year P/E ratio of 32. That's reasonable for a stock growing as fast as On.
I don't know if On can keep up its high growth long-term, but it has a huge opportunity. I can envision it achieving steady double-digit growth for several years, and this looks like an opportunity to buy On stock on the dip.
