On Holding’s SWOT analysis: premium footwear brand faces growth challenges

On Holding AG (NYSE:ONON), the Swiss-based premium sportswear company known for its innovative running shoes, has been making significant strides in the global athletic footwear market. With impressive revenue growth of 35% and industry-leading gross margins exceeding 60%, the company has captured investors’ attention. According to InvestingPro analysis, On Holding maintains strong financial health with more cash than debt on its balance sheet, positioning it well for continued expansion. This comprehensive analysis examines On Holding’s strengths, weaknesses, opportunities, and threats in the current market landscape.

Company Overview and Recent Performance

On Holding, founded in 2010 in Switzerland, has quickly established itself as a formidable player in the athletic footwear industry. The company’s patented cushioned platform technology has garnered significant consumer interest, leading to strong brand momentum and market-leading Net Promoter Scores (NPS).

In the first quarter of 2025, On Holding demonstrated exceptional performance, with constant currency sales growth of 40%, surpassing consensus expectations of 34%. This growth was attributed to broad-based strength across the company’s offerings. Management indicated that this positive trend was not only continuing but also accelerating into the second quarter of 2025, with April noted as "the strongest month in the history of the company."

The company’s strong performance extends beyond sales growth. On Holding has also shown improvements in gross margin, EBITDAR margin, and earnings per share (EPS). InvestingPro data reveals the company’s robust financial position, with a current ratio of 2.8x indicating strong liquidity and an impressive Altman Z-Score of 9.09, suggesting minimal financial distress risk. These financial metrics underscore the company’s operational efficiency and profitability.

Growth Strategy and Market Expansion

On Holding’s growth strategy revolves around several key pillars: direct-to-consumer (DTC) expansion, geographical diversification, and product category growth.

The company’s DTC-led strategy has been a significant factor in its early stages of global growth. By focusing on direct sales channels, On Holding can maintain greater control over its brand presentation and customer experience while potentially improving margins.

Geographically, On Holding is pursuing a diversified approach. While the United States remains its largest market, the company has seen strong growth in the Americas and Asia-Pacific regions. This global expansion helps mitigate risks associated with overreliance on a single market.

In terms of product categories, On Holding aims to double its apparel sales exposure. This diversification into apparel represents a significant opportunity for the company to leverage its brand strength beyond footwear and capture a larger share of the overall sportswear market.

Product Innovation and Brand Positioning

On Holding’s success is largely attributed to its innovative product offerings. The company’s patented cushioned platform technology has set it apart in the competitive footwear market. Ongoing product innovation, such as the development of LightSpray technology, continues to drive consumer interest and maintain the brand’s premium positioning.

The company’s focus on premium positioning has allowed it to maintain strong pricing power. This strategy has proven effective in building brand value and supporting higher margins.

Challenges and Risks

Despite its strong performance, On Holding faces several challenges and risks that could impact its future growth trajectory. InvestingPro analysis flags that the stock is currently trading at elevated multiples with a P/E ratio of 76.7x and an EV/EBITDA of 53.55x, suggesting high growth expectations are already priced in. Additionally, technical indicators show the stock may be overbought, warranting careful consideration from investors.

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One significant concern is the potential impact of increased tariffs, particularly on goods sourced from Vietnam. Analysts estimate that tariffs could increase On Holding’s cost of goods sold (COGS) by 25-30%, posing a significant risk to earnings. While the company’s pricing power may help mitigate some of this impact, it remains a near-term challenge.

Competition in the athletic footwear market is intensifying, with major players like Nike (NYSE:NKE) focusing on regaining market share in the running category. This increased competition could pressure On Holding’s market position and potentially impact its growth rates.

Additionally, the company’s high valuation metrics, such as its EV/EBITDA and P/E ratios, indicate a premium valuation relative to earnings growth. This high valuation could pose a risk if the company fails to meet growth expectations.

Future Outlook

Analysts project a positive outlook for On Holding, with expectations of continued strong growth. The company is forecasted to achieve a 23% reported sales growth and a 27% constant currency growth in the near term, aligning with guidance.

Long-term projections suggest On Holding could increase its sales share among sportswear brands from 2% in 2024 to 3-4% by 2030. The company’s own conservative estimate forecasts sales of CHF11.4 billion by 2035. With a current revenue CAGR of 54% over the past five years and analysts projecting continued strong growth, these targets appear achievable.

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On Holding is also on track to achieve its adjusted EBITDAR target of 18%+ by FY26, indicating improving profitability alongside growth.

Bear Case

How might increased tariffs impact ONON’s profitability?

The potential implementation of increased tariffs, particularly on goods sourced from Vietnam, poses a significant threat to On Holding’s profitability. With up to 90% of its sourcing from Vietnam, the company is highly exposed to tariff risks. Analysts estimate that these tariffs could increase On Holding’s cost of goods sold (COGS) by 25-30%, which would have a substantial impact on the company’s bottom line.

While On Holding does have some pricing power due to its premium brand positioning, there are limits to how much of these increased costs can be passed on to consumers without affecting demand. The company may need to absorb a portion of these costs, which could lead to margin compression and lower profitability in the near term.

Additionally, if On Holding decides to diversify its sourcing to mitigate tariff risks, this could lead to increased operational complexity and potentially higher costs in the short term as new supply chains are established.

Can ONON maintain its growth trajectory in the face of intensifying competition?

The athletic footwear market is becoming increasingly competitive, with established giants like Nike refocusing on key categories such as running shoes. This intensified competition poses a challenge to On Holding’s ability to maintain its rapid growth trajectory.

As larger competitors with significant resources invest heavily in product innovation and marketing, On Holding may find it more difficult to differentiate its offerings and maintain its premium positioning. This could potentially lead to slower market share gains or even loss of market share in key segments.

Furthermore, increased competition could lead to pricing pressures, potentially eroding On Holding’s margins. If the company is forced to engage in price competition to maintain market share, it could negatively impact its profitability and growth rates.

The company’s ability to continue innovating and effectively communicating its unique value proposition to consumers will be crucial in maintaining its growth trajectory amidst intensifying competition.

Bull Case

How could ONON’s expansion into new categories and markets drive future growth?

On Holding’s strategy to expand into new product categories and geographical markets presents significant growth opportunities. The company’s plan to double its apparel sales exposure could be a major driver of future growth. By leveraging its strong brand recognition in footwear, On Holding has the potential to capture a larger share of the overall sportswear market.

Expanding into apparel not only increases the company’s total addressable market but also provides opportunities for higher margins and increased customer loyalty. Successful apparel lines could lead to higher average transaction values and more frequent purchases from existing customers.

Geographically, On Holding’s strong performance in the Americas and Asia-Pacific regions demonstrates its ability to succeed in diverse markets. Further expansion into new countries and regions could help the company tap into new customer bases and reduce its dependence on any single market.

Moreover, the company’s plans to expand into new sports categories beyond running could open up additional growth avenues. By applying its innovative technology and design approach to other sports, On Holding could attract new customer segments and increase its overall market share in the sportswear industry.

What potential does ONON’s DTC strategy have for improving margins and customer engagement?

On Holding’s focus on a direct-to-consumer (DTC) strategy holds significant potential for improving both margins and customer engagement. By prioritizing direct sales channels, including e-commerce and company-owned retail stores, On Holding can exert greater control over its brand presentation and customer experience.

From a financial perspective, the DTC approach typically allows for higher margins compared to wholesale distribution. By cutting out intermediaries, On Holding can capture a larger portion of the final sale price. Analysts project a +28% DTC sales CAGR, which could contribute significantly to the company’s overall profitability.

In terms of customer engagement, the DTC strategy enables On Holding to gather valuable first-party data on consumer preferences and behaviors. This data can be used to inform product development, marketing strategies, and personalized customer experiences, potentially leading to higher customer satisfaction and loyalty.

Additionally, direct interaction with customers through owned channels allows On Holding to build stronger brand relationships and create a more immersive brand experience. This can lead to increased brand loyalty and potentially higher lifetime customer value.

The success of the DTC strategy is evident in the company’s recent performance, with strong growth reported in the DTC channel. As On Holding continues to refine and expand its DTC operations, it could see further improvements in both financial performance and customer engagement metrics.

SWOT Analysis

Strengths:

• Strong brand momentum and consumer interest
• Innovative product technology, particularly in footwear
• Successful direct-to-consumer (DTC) strategy
• Premium brand positioning with strong pricing power
• Robust financial performance with high growth rates

Weaknesses:

• High dependence on footwear category
• Significant exposure to potential tariffs on Vietnamese imports
• Premium valuation may limit further stock price appreciation
• Relatively new player in a highly competitive market

Opportunities:

• Expansion into apparel and new product categories
• Geographical diversification, particularly in Asia-Pacific and emerging markets
• Potential for market share gains in the global sportswear industry
• Continued innovation in product technology (e.g., LightSpray)
• Further development of DTC channels for improved margins and customer engagement

Threats:

• Intensifying competition from established sportswear giants
• Potential impact of increased tariffs on profitability
• Economic uncertainties that could affect consumer spending on premium products
• Supply chain disruptions or increased costs
• Rapid growth may strain operational capabilities

Analysts Targets

• Truist Securities: Buy, $69.00 (May 14th, 2025)
• KeyBanc: Overweight, $68.00 (May 14th, 2025)
• Barclays (LON:BARC): Overweight, $68.00 (May 14th, 2025)
• Citi Research: Buy, $60.00 (April 28th, 2025)
• Goldman Sachs: Neutral, $57.00 (February 12th, 2025)
• BofA Securities: Buy, $73.00 (January 7th, 2025)

This analysis is based on information available up to May 28, 2025.

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