Shares of On Holding (ONON +2.12%) shot up over 20% this week, according to data from S&P Global Market Intelligence. The Swiss running shoe company keeps expanding around the globe and growing sales despite a broad industry downturn. Management raised guidance yet again, calling for healthy double-digit growth in 2025.
As of this writing after the market close on Nov. 13, shares of On Holding are up 21.1% this week, recovering most of its losses in the last month. Here's why.
NYSE: ONON
Key Data Points
Growing amid a slow apparel period
Apparel has been a rough business the last few years, especially athletic apparel. Stocks like Nike and Lululemon have faltered because of slowing revenue growth in both shoes and athleisure. At the same time, On Holding has grown despite this industry headwind.
Revenue grew 34.5% in constant currency last quarter to approximately $1 billion, driven by global growth in Europe, the United States, and Asia. The company is opening up flagship stores in large cities such as Zurich and Tokyo, while also expanding away from just running shoes and selling apparel. Growth in Asia has been particularly spectacular, up 109% year over year in constant currency last quarter.
With this phenomenal growth, On Holding raised its 2025 guidance for at least 34.5% revenue growth. Importantly, it is also guiding for increased gross margins to 62.5%. Despite tariff headwinds on costs, On Holding's premium position in the marketplace has allowed it to raise prices without sacrificing demand. That is the sign of a good business.
Image source: Getty Images.
Is On Holding stock a buy?
On Holding's financial performance has been fantastic since going public in 2021. Revenue has grown by a cumulative 166%, while EBIT (earnings before interest and taxes) has grown by 370%.
Despite this, the stock still has a premium valuation. It has a trailing enterprise value-to-EBIT (EV/EBIT) multiple of 38, which helps exclude noncash charges such as currency fluctuations on its accounting statements, given that it is a Swiss company. Its price-to-earnings ratio (P/E) is much higher at 93, but that is underplaying its actual earnings power.
An EV/EBIT of 38 is an expensive earnings multiple. However, if you believe that On Holding can keep gaining market share in running shoe sales and expand into apparel around the globe, then perhaps this EV/EBIT will come down quickly and look cheap a few years down the line. There is still potential with On Holding stock despite its 20% post-earnings bump.
