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On Holding (ONON) has been one of the most searched-for stocks on Zacks.com lately. So, you might want to look at some of the facts that could shape the stock's performance in the near term.
Shares of this running-shoe and apparel company have returned +14.3% over the past month versus the Zacks S&P 500 composite's +3.7% change. The Zacks Leisure and Recreation Products industry, to which On Holding belongs, has gained 11% over this period. Now the key question is: Where could the stock be headed in the near term?
Although media reports or rumors about a significant change in a company's business prospects usually cause its stock to trend and lead to an immediate price change, there are always certain fundamental factors that ultimately drive the buy-and-hold decision.
Revisions to Earnings Estimates
Rather than focusing on anything else, we at Zacks prioritize evaluating the change in a company's earnings projection. This is because we believe the fair value for its stock is determined by the present value of its future stream of earnings.
Our analysis is essentially based on how sell-side analysts covering the stock are revising their earnings estimates to take the latest business trends into account. When earnings estimates for a company go up, the fair value for its stock goes up as well. And when a stock's fair value is higher than its current market price, investors tend to buy the stock, resulting in its price moving upward. Because of this, empirical studies indicate a strong correlation between trends in earnings estimate revisions and short-term stock price movements.
On Holding is expected to post earnings of $0.25 per share for the current quarter, representing a year-over-year change of +13.6%. Over the last 30 days, the Zacks Consensus Estimate has changed +4.4%.
The consensus earnings estimate of $0.99 for the current fiscal year indicates a year-over-year change of +153.9%. This estimate has changed +1.1% over the last 30 days.
For the next fiscal year, the consensus earnings estimate of $1.14 indicates a change of +14.9% from what On Holding is expected to report a year ago. Over the past month, the estimate has changed +0.9%.
With an impressive externally audited track record, our proprietary stock rating tool -- the Zacks Rank -- is a more conclusive indicator of a stock's near-term price performance, as it effectively harnesses the power of earnings estimate revisions. The size of the recent change in the consensus estimate, along with three other factors related to earnings estimates, has resulted in a Zacks Rank #3 (Hold) for On Holding.
The chart below shows the evolution of the company's forward 12-month consensus EPS estimate:
12 Month EPS
Revenue Growth Forecast
While earnings growth is arguably the most superior indicator of a company's financial health, nothing happens as such if a business isn't able to grow its revenues. After all, it's nearly impossible for a company to increase its earnings for an extended period without increasing its revenues. So, it's important to know a company's potential revenue growth.
For On Holding, the consensus sales estimate for the current quarter of $716.35 million indicates a year-over-year change of +31.7%. For the current and next fiscal years, $2.64 billion and $3.31 billion estimates indicate +32.2% and +25.5% changes, respectively.
Last Reported Results and Surprise History
On Holding reported revenues of $627.66 million in the last reported quarter, representing a year-over-year change of +27%. EPS of $0.16 for the same period compares with $0.04 a year ago.
Compared to the Zacks Consensus Estimate of $634.43 million, the reported revenues represent a surprise of -1.07%. The EPS surprise was -15.79%.
Over the last four quarters, On Holding surpassed consensus EPS estimates two times. The company topped consensus revenue estimates two times over this period.
Valuation
Without considering a stock's valuation, no investment decision can be efficient. In predicting a stock's future price performance, it's crucial to determine whether its current price correctly reflects the intrinsic value of the underlying business and the company's growth prospects.
Comparing the current value of a company's valuation multiples, such as its price-to-earnings (P/E), price-to-sales (P/S), and price-to-cash flow (P/CF), to its own historical values helps ascertain whether its stock is fairly valued, overvalued, or undervalued, whereas comparing the company relative to its peers on these parameters gives a good sense of how reasonable its stock price is.
As part of the Zacks Style Scores system, the Zacks Value Style Score (which evaluates both traditional and unconventional valuation metrics) organizes stocks into five groups ranging from A to F (A is better than B; B is better than C; and so on), making it helpful in identifying whether a stock is overvalued, rightly valued, or temporarily undervalued.
On Holding is graded F on this front, indicating that it is trading at a premium to its peers. Click here to see the values of some of the valuation metrics that have driven this grade.
Conclusion
The facts discussed here and much other information on Zacks.com might help determine whether or not it's worthwhile paying attention to the market buzz about On Holding. However, its Zacks Rank #3 does suggest that it may perform in line with the broader market in the near term.
Zacks Investment Research
Shares of On Holding AG ONON have gained 12.2% in the past month compared with the industry’s 6.7% growth. The recent stellar performance puts it ahead of competitors like American Outdoor Brands, Inc. AOUT, Acushnet Holdings Corp. GOLF and Academy Sports and Outdoors, Inc. ASO in terms of price performance in the past month.
ONON is riding on the success of its multi-channel strategy, which has effectively captured global brand momentum and translated it into strong sales growth across all channels. The company is witnessing increased demand for full-price products among wholesale partners, including key accounts and specialty retailers, both online and in physical stores. Although e-commerce experienced softer demand early in the second quarter, growth quickly rebounded in the latter half, leading to record website traffic. The global launch of ONON's first commercial app has outperformed expectations in downloads and transactions, with a high share of apparel sales comparable to its retail stores.
Technical indicators are supportive of ONON’s strong performance. The stock was recently trading at $44.36 on Monday, above its 50-day moving average of $40.82 and the 200-day moving average of $34.74. This technical strength reflects positive market perception and confidence in ONON's financial health and prospects. So, should investors pour more capital into On shares now? Let’s take a closer look.
Key Fundamentals Supporting ONON's Stock Growth
Strategic Partnerships and Brand Building: On's strategic partnerships with high-profile figures like Zendaya, FKA Twigs, Iga Swi??tek and Roger Federer have significantly boosted its brand visibility and credibility. The company’s presence at major events, such as the recent Olympic Games in Paris, has further solidified its reputation as a global premium performance sportswear brand. These partnerships help On tap into new markets and build a more diverse and engaged consumer base.
Additionally, On's innovative marketing campaigns, such as the air tennis tournament between Zendaya and Roger Federer, have successfully captured the public's imagination, resulting in millions of media impressions and a strong increase in brand awareness.
Innovation as a Driver of Long-Term Growth: On's commitment to innovation is a major factor contributing to its sustained growth. The launch of the LightSpray technology — which allows for the creation of ultralight performance shoes in a highly efficient, one-step process — is a testament to its commitment. The groundbreaking technology has garnered significant media attention and has been validated by exceptional athletic performances, such as Hellen Obiri’s victory in the Boston Marathon.
Also, strong growth across running franchises, including the Cloudmonster, Cloudsurfer and Cloudrunner, bode well. The focus on innovation not only drives short-term sales but also sets the stage for long-term success by improving sustainability and expanding product offerings.
Growing Global Presence and Market Share: On's global expansion strategy is paying off, with strong sales growth across multiple regions. The company has reported strong performance in the Americas, EMEA and APAC regions, with significant growth rates and increased market share. New retail stores in key locations, such as New York and Hong Kong, have exceeded expectations, showcasing the brand's growing global footprint.
The expansion of its direct-to-consumer (D2C) channel has also been successful, contributing to a 28.1% year-over-year increase in net sales in the second quarter of 2024. This multi-channel strategy allows On to capture and convert its brand momentum into continued sales growth, ensuring sustained profitability.
What May Pull Back ONON Stock?
Competitive Pressures: The sportswear and performance market is highly competitive, with established giants like Nike, Adidas, and Under Armour dominating the space. Although On has made strides in expanding its product range and market presence, its reliance on its unique approach and niche innovations may not be sufficient to carve out a significant market share in the long term.
Additionally, the company's ongoing expansion efforts, such as opening new flagship stores and launching new products, require substantial capital investment. With a crowded marketplace and high entry costs, ONON risks overextending itself in pursuit of rapid growth, which could impact its profitability and financial stability.
Overemphasis on Marketing and Partnerships: On has invested significantly in marketing and brand partnerships. While these efforts have raised brand visibility, they may not translate into sustainable sales growth. The company's strategy seems overly reliant on celebrity endorsements and high-profile campaigns to drive short-term brand awareness. Such tactics may inflate its marketing expenses without delivering the long-term profitability that investors seek.
ONON’s Rising Valuation & Estimates
ONON is trading at a premium to the industry. With a forward 12-month price-to-earnings of 40.66X, which is well above the industry average of 27.25X.
The Zacks Consensus Estimate for the company’s 2024 earnings per share (EPS) increased from 95 cents to 99 cents in the past 60 days. During the same period, the consensus mark for 2025 EPS moved up from $1.10 to $1.14.
Investment Verdict: Hold for Now
Given ONON's strong recent performance, innovative product pipeline and expanding market presence, the stock shows promise for continued growth. However, the competitive landscape, high marketing expenses and premium valuation suggest caution. For investors already holding ONON stock, it may be wise to maintain their position and monitor the company’s ability to translate its strategies into sustainable long-term growth. For new investors, it might be prudent to wait for a more favorable entry point.
ONON currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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