On Holding Management lifts forecast on US optimism (NYSE:ONON)

Gokhan Eksane

A quick take on the outfit

On Holding SA (NYSE: ONON) went public in September 2021, raising approximately $746 million in gross proceeds from an IPO at a price of $24.00 per share.

The company designs and sells high prices performance footwear, apparel and accessories worldwide.

For optimistic investors, ONON may present an attractive growth story at a bargain price, but I’m more cautious, so I’m holding ONON in the near term.

Hold Preview

On Holding AG, based in Zurich, Switzerland, was founded to develop a premium athletic and consumer brand for running shoes and related sportswear.

The management is led by co-CEO and CFO Martin Hoffmann, who has been with the company since January 2021 and was previously CFO at Valora Retail.

The company’s main offerings include:

  • Running shoes

  • Sports clothing

The company sells its products to operating stores, outdoor, fashion and lifestyle retailers worldwide.

The company also sells directly to consumers [DTC] through its online sites and corporate-owned retail stores.

On the market and the competition of Holding

According to a 2021 market research report According to Mordor Intelligence, the global athletic footwear market was estimated at $99.6 billion in 2020 and is expected to reach $130 billion by 2026.

This represents a projected CAGR of 4.56% from 2021 to 2026.

The main drivers of this expected growth are a growing awareness of the importance of physical fitness and a growing interest in sports and leisure activities by consumers in various parts of the world.

Additionally, the COVID-19 pandemic has had a negative impact on the sports footwear retail market, but these effects may have been enhanced by manufacturers with significant direct-to-consumer channel capabilities.

Major competitors or other industry participants include:

  • Nike

  • Deckers Outdoor (Hoka One One)

  • Adidas

  • Reebok

  • under protection

  • Brooks Sports

  • Asics

  • New balance

  • lululemon

  • Patagonia

  • Anta Group

  • Lining

  • Others

On Holding’s recent financial performance

  • The total turnover per quarter increased according to the following graph:

Total revenue for the 9 quarters

Total revenue for the 9 quarters (Looking for Alpha)

  • Gross margin by quarter followed approximately the same trajectory as that of total revenue:

Gross profit for the 9 quarters

Gross profit for the 9 quarters (Looking for Alpha)

  • Selling, G&A expenses as a percentage of total revenue per quarter have generally remained around 50%:

9 Quarter Sales, G&A % of revenue

9 Quarter Sales, G&A % of revenue (Looking for Alpha)

  • Operating income by quarter was as follows:

9 quarter operating profit

9 quarter operating profit (Looking for Alpha)

  • Earnings per share (diluted) followed a similar trajectory to operating profit:

Earnings per share over 9 quarters

Earnings per share over 9 quarters (Looking for Alpha)

(All data in the charts above is in accordance with GAAP.)

Since its IPO, ONON’s stock price has fallen 55.6% compared to the US S&P 500 index decline of around 14.5%, as shown in the chart below:

52 week stock prices

52 week stock prices (Looking for Alpha)

Valuation and other measures for detention

Below is a table of relevant capitalization and valuation figures for the company:

Measure [TTM]


Enterprise Value / Sales


Revenue growth rate


Net profit margin




Market capitalization


Enterprise value


Operating cash flow


Earnings per share (fully diluted)


(Source – Alpha Research)

For reference, a relevant partial public comparable would be Under Armour, Inc. (UA); Below is a comparison of their main evaluation metrics:


under protection



Enterprise Value / Sales




Revenue growth rate




Net profit margin




Operating cash flow




(Source – In Search of Alpha.)

A full comparison of the two companies’ performance metrics can be viewed here.

Compared to Seeking Alpha Footwear’s basket of relevant industry stocks, the company has the highest EV/Revenue and Price/Sales multiples, but the lowest EV/EBITDA multiple.

Comment on outfit

In its latest earnings call (Source – Seeking Alpha), covering Q2 2022 results, management highlighted its growth rates as the US and Japan more than doubled their year-over-year revenue. other and UK and Australia increasing 60%

On the product development side, the company is putting more emphasis on underfoot protection and comfort, releasing the “Cloudmonster for maximum cushioning and the Cloudrunner for ultimate comfort and performance.”

The company also launched Cloudvista and Cloud 5 earlier in the year.

ONON has opened its On Labs center in Zurich, which will be a combination of the head office, innovation center, sample production line and its first retail store in Europe, which portends new ambitions for retail there.

Turning to its financial results, revenue grew 66.6% year-over-year, the strongest in the company’s history, and despite weakness in the China region due to shutdowns .

This growth was primarily due to higher growth in its wholesale channel, primarily with existing retail partners, but also through “selectively expanding our doors with our global and regional key accounts.”

Adjusted EBITDA doubled sequentially as SG&A expenses fell as a percentage of revenue.

Inflation has affected its costs, with airfreight inflation being a significant factor in its cost considerations.

For the balance sheet, the company ended the quarter with cash, cash equivalents and short-term investments of $605 million and no debt.

Over the past twelve months, free cash used was $192.6 million.

Looking ahead, management “sees no sign of slowing demand for On products”, despite the slowing global economy. And its supply outlook has improved in recent quarters.

The company raised its full-year 2022 revenue forecast from 44% growth to 52%, likely due to expected growth in its “Cloud” footwear line and a very strong order book. from the United States.

In terms of valuation, the market values ​​ONON at a premium over other companies such as Under Armour, likely due to its growth potential.

The main risk to the company’s outlook is slowing US and European markets, although if China returns to growth as COVID-19 lockdowns ease, that could provide some compensation.

A potential upside catalyst for the stock could include continued strength in US consumer spending despite an economic slowdown.

While On’s management appears optimistic about its growth potential for the remainder of 2022, my view is more pessimistic, especially as the US Federal Reserve continues to raise interest rates to slow the economy. ‘economy.

For optimistic investors, ONON may present an attractive growth story at a bargain price, but I’m more cautious, so I’m holding ONON in the near term.

About Rodney Fletcher

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