From Swiss Alps to Wall Street

On aka On Holding AG

Founded in 2010 by Oliver Bernhard, Caspar Coppetti, and David Allemann. On is a Swiss-based sportswear company, initially focused on disrupting the running shoe market. The company developed a proprietary CloudTec technology that helped them quickly gain attention. Over the years, On has expanded its product portfolio to include sporting apparel and accessories evolving into a global athletic and lifestyle company. This market is dominated by well-established brands like Nike, Adidas, and Under Armour yet On has been able to create a niche for customers who want premium-designed products. 

On’s mission is to inspire movement and innovation by delivering cutting-edge products that refine current experiences for athletes and everyday consumers. On is committed to being environmentally friendly across the company's supply chain by reducing its carbon footprint with sustainable manufacturing practices. The company has disrupted the premium sportswear market with its unmatched innovation, financial growth, and brand positioning which makes it a compelling investment opportunity. 

The sportswear industry has experienced unprecedented growth driven by a shift in consumer behavior towards wellness and fitness. On has been able to show its ability to outperform its competitors in the space by its strong financial performance and unique innovations. The company is still in the early stages of its global expansion leaving them with significant upside yet to be found in markets like Asia and Latin America. 

On Holding AG has consistently been able to deliver exceptional financial results that have positioned them leading sportswear brand. In its most recent earnings report, the company achieved a record net sales of $635 million, representing a 33% year-over-year growth. This was fueled by an explosive performance from its DTC channel which grew 50% in YoY growth. The brand was able to see this momentum from its global marketing efforts, driven by its strategic focus on running franchise stores and heightened brand visibility from events like the Paris Olympics. 

On’s profitability has been another standout metric for the company, from its focus on strategic pricing and premium product offerings. In its most recent earnings report, it reported its highest gross profit margin of 60%. This was largely driven by the company's expanding DTC channel which offers higher margins than a traditional wholesale strategy. On was also able to report a strong EBITDA margin of 18.9% which highlights its ability to balance its expansive growth with cost efficiency. 

On’s valuation reflects its premium position and rapid growth trajectory, but trades at a higher valuation compared to its peers. Its PE ratio reflects the market confidence in the company's long-term outlook, compared to industry giants like Nike and Lululemon. The company's price-to-book ratio also shows its premium value supported by its strong brand equity, global expansion plans, and growing market share. As On continues to strengthen its presence through growth in international markets and its direct to consumer model, its valuation is likely to stay above traditional industry averages. 

The company has been able to report a steady improvement in cash flow metrics, driven by its ability to scale its operations and its high-margin DTC business. The rapid growth from the company's DTC segment coupled with its inventory management has contributed to its cash generation. Its free cash flow trends have enabled the company to reinvest in its business by focusing on R&D and its global market strategies. On’s ability to fund its growth without comprising its profitability highlights its financial health and operational efficiency. 

Operating in a highly competitive and rapidly growing global athletic and lifestyle sportswear industry, On competes against a few global players like Nike, Adidas, and Lululemon. This market segment has seen explosive growth in the past few years driven by the increasing demand for performance-driven, sustainable, and fashion-forward activewear. On has been able to create a niche by appealing to customers who are willing to pay a premium for products with a unique design and innovative technologies.

On is well placed to capture further market share from its brand recognition, supported by athlete endorsements and collaborations with profile personalities like Rodger Federer. It is estimated that Rodger Federer acquired 3% of On in 2019 for $300 million and he actively participates in product design. This has helped On cement its status as a leader in the premium niche segment of the sportswear sector. 

On competes across several niches within the apparel and athletic footwear markets, with global giants like Nike, Adidas, Puma, and Lululemon as well as smaller more specialized brands like Hoka, Allbirds, and other DTC athleisure brands. Nike and Adidas dominate the market from their extensive global network of retailers, distribution, and ability to spend billions on R&D. Also, Lululemon has been able to capture a significant portion of the market share within the athleisure niche due to its loyal customer base and premium pricing strategies. 

Despite competing against much larger companies, On’s focus on its DTC strategy is a significant differentiating that contributes to its high margins. Additionally, On’s proprietary CloudTec technology has enabled it to deliver high comfort and performance gear to its strong customer base. With a presence in over 60 countries, ON has successfully built a strong global presence while maintaining a focus on its core beliefs. 

On’s competitive advantage lies in its innovation-driven, premium branding, and sustainability-first approach. On’s proprietary technologies like CloudTek, Speedboard, and Lightspray have enabled the company to build highly marketable, and strong connections with its customers. Brand loyalty is the cornerstone of On’s competitive edge as many customers view the brand as synonymous with cutting-edge performance and design. 

The company's effort to maintain a sustainable supply chain is another competitive edge of theirs, as customers have increasingly been concerned about environmental waste. Its focus on using sustainable materials, and achieving carbon neutrality has strongly resonated with environmentally conscious customers.  On’s product footprint is still heavily concentrated in the footwear category, and its apparel and accessories lines are rapidly growing. 

The company's DTC strategy accounted for 39% of its revenue in Q3 2024 which is a 50% YoY growth. This shows that On is well positioned for sustained organic growth, driven by innovative product launches, geographical expansion, and the rapid scaling of its DTC channel. Upcoming initiatives include expanding its network of flagship stores in key global cities and the continued enhancement of its e-commerce platform. On believes they will have success with expanding their operations to Asia where demand for premium sportswear is rapidly rising. 

The company's strong performance mostly comes from within the United States and Europe. This underscores On’s ability to scale and operate its brand on a global scale. On’s expanding apparel segment is another organic revenue driver, while still a small contribution to its total revenue, On expects this segment to offer significant upside. Combined with its recurring investment in its research and development ensuring the company can release new products that appeal to both performance and lifestyle customers. 

Given the company's premium positioning, acquiring smaller brands in the sportswear or sustainability space could enhance On’s product offering and accelerate its market presence. Strategic alliances, with partnerships from high-profile athletes, celebrities, and influencers, have also played a pivotal role in the company's growth strategy. Additionally, partnerships with large retailers in Asia could accelerate On’s distribution and drive sales. 

Several key factors could propel On’s growth in the near and long term including DTC expansion, innovation and product diversification, global events and brand awareness, and sustainability-driven demand. On’s new LightSpray technology is made from fully recyclable materials, this aligns with the eco-conscious customers who seek ecofriendly options. Also as disposable incomes rise and the demand for premium sportswear accelerates, On is well-positioned to capture this growth with its innovation and aspirational brand. 

On faces operational risks that include production, logistics, and management-related risks. These risks stem from the company's reliance on third-party manufacturers and a global supply chain. Disruptions from rising labor costs, supply chain bottlenecks, and geopolitical instability could impact the company's ability to improve its margins and product availability. Scaling operating could lead to challenges when it comes to maintaining brand quality and product consistency across geographies. Any mismanagement or failure to meet consumer expectations could erode customer loyalty and damage the brand's reputation.

On’s competitors like Nike, Adidas, and Lululemon have significant market share and financial resources over On, which allows them to engage in more aggressive growth tactics. On’s premium positioning could expose them to price sensitivity if economic conditions were to worsen leading customers to chase lower-cost options. This risk is particularly important in emerging markets where On has begun to heavily invest, although demand for their products could be volatile due to influxes in disposable incomes. 

On’s premium positioning and growth strategy have led it to higher valuations compared to its traditional peers. Any missteps in On’s execution across its supply chain could lead to a significant drop in stock price. The company stock is highly sensitive to broader market conditions and investor sentiment, On is vulnerable to rising interest rates and market sell-offs that could impact the company's valuation. Investors should remain cautious of the competitive pressures that come from the DTC industry, if the company fails to deliver on its commitments it would hurt On’s ability to sustain its growth. 

On Holding AG has been able to stand out as a leading player in the global sportswear industry by successfully combining cutting-edge innovation, swiss engineering, and a commitment to sustainability. The company's proprietary technologies have enabled it to grow at rapid rates compared to its competitors, On has been able to grow its DTC segment by 50% YoY. This has enabled On to control its brand narrative and improve profitability by creating strong relationships with its customers. 

On still faces many challenges across its operation, market, and valuation that have stemmed from being a publicly traded global company. On’s reliance on third-party manufacturers could damage the brand's future value and customer loyalty if it fails to maintain its high standards. Competitors like Nike and Adidas have a long history and are extremely well-capitalized to face demand fluctuations and potential economic uncertainties. 

On has many potential catalysts that could propel their growth in the near and long term including DTC growth, product innovation, expansion, and margin improvement. On also has been very focused on keeping a sustainable supply chain to reach carbon neutrality with a bundle of products that appeal to eco-conscious consumers. On is all well positioned to take market share in emerging markets like Asia and Latin America as consumers are searching for high-quality athleisure apparel and footwear. 

The bad boys over at Azar Capital Group will be giving On Holding AG a “BUY” rating. This rating is based on their growth potential and robust financial performance over the years. The company has been able to sustain 30% annual growth with a gross profit margin of 60% has enabled it to create operational efficiency through its DTC business. We believe that On’s focus on innovation, sustainability, and geographical expansion has provided them with many paths to success making them a compelling long-term investment. 

Disclosure

This analysis is for informational purposes only and should not be considered financial advice. Investors are encouraged to perform their own due diligence or consult with a financial advisor before making investment decisions.