A Discounted Growth Stock Worth Watching: On Holding’s Potential

by

In the world of investing, the market ascends, seemingly indifferent to the world’s travails. With the S&P 500 climbing ever higher, one may be left to ponder the true nature of such growth. Does it reflect sustainable progress, or is it but the fleeting euphoria of a bull caught in the winds of uncertainty?

While the landscape flourishes, there lies, in its shadow, an ever-present question: Where should the discerning investor place their bet? Among the high-flying, speculative stocks, one might find a quiet opportunity-hidden, not unlike a neglected path through a blossoming forest. Let us then consider the case of On Holding (ONON), whose stock has fallen 34% from its peak, leaving us to wonder if this is the moment to step forth into the fray.

The Rise of On Holding

On Holding, a young brand that seeks to carve its name among the giants of athleisure, has caught the attention of the discerning few. Its shoes, with their characteristic soles-holes running along the sides-promise comfort that transcends the mere act of walking. The On Cloud sneaker, its signature creation, has become emblematic of this burgeoning brand, with others such as the Cloudsurfer and Cloudmonster weaving their own tales of success. Such names evoke images of soft, cloud-like strides, and indeed, for many, they are no mere footwear, but symbols of a lifestyle.

Their appeal lies in more than just their design; it is the allure of exclusivity, of a product that promises something beyond the ordinary. A certain class of customers, with taste honed by time and wealth, have shown an unshakeable loyalty to On’s wares, making it not just a brand, but a statement of distinction. As the fanbase grows, so too does the company’s revenue, with an impressive 38% year-over-year growth in the second quarter of 2025 (currency neutral). But it is not just the shoes that are catching the eye-On is diversifying, and its clothing and accessories have shown startling growth: a 76% increase in apparel sales and a staggering 143% in accessories.

The brand’s global footprint continues to expand, not through mere whim, but through careful, calculated steps. Direct-to-consumer sales surged 54%, a testament to the brand’s ability to speak directly to the consumer’s heart, while also maintaining a robust presence in wholesale channels, ensuring its reach extends far beyond the initial core of loyal buyers.

Yet, as with all enterprises, there is a cost. Gross margin expanded modestly from 59.9% to 61.5%, but the high expense of expansion-particularly in marketing and administration-remains a constant burden. The company, still in the throes of growth, has yet to realize profitability, with its second-quarter net income remaining negative. The future, though promising, is far from certain.

On the Mend: The Price of Progress

What, then, of the stock price? It soared initially, propelled by optimism following a strong quarter and a raised guidance forecast. Yet, the winds of caution have begun to blow more strongly. Fears of tariffs and persistent inflation have brought the stock price down, despite its growth. On, you see, manufactures much of its product in Southeast Asia, and tariffs on goods from Vietnam and Indonesia have risen dramatically, threatening to squeeze already-thin margins.

There is, however, an air of quiet confidence within the company. CEO Martin Hoffmann, undeterred by the rising tariffs, remains steadfast, insisting that with scale comes the ability to absorb additional costs without sacrificing profitability. His words echo the sentiment of many in his position: that the challenges of the present will soon be overcome by the power of growth and strategic pricing.

Yet, even as the company raises its guidance, there is an inevitable truth: As On becomes larger, its growth rate inevitably slows. The acceleration of sales that once seemed boundless now appears to be tapering, and with this deceleration comes a recalibration of investor expectations. As much as the market rewards growth, it is fickle, and a slower pace-however necessary-may not inspire the same kind of euphoric valuation that once accompanied its meteoric rise.

A Stock for the Thoughtful Investor

In light of all this, On Holding remains an intriguing prospect for the thoughtful investor. At its current price, it trades at a forward price-to-earnings ratio of 26 and a price-to-sales ratio of 4.4-indicators that may suggest it is still undervalued, given its potential. The company is still in its early stages, yet its momentum cannot be denied. This is a stock that could very well be in the early chapters of a long and fruitful story.

Indeed, the stock’s current price appears to be a reflection of an overreaction to short-term difficulties. Wall Street’s average target price suggests a potential 64% gain over the next 12 to 18 months, with a high estimate reaching 90%. For those seeking a growth stock that offers both a challenge and a reward, On Holding may present the kind of opportunity that seldom comes around.

In the dance of market fortunes, timing remains everything, and for those with the patience and insight to see past the present turbulence, On Holding could be a worthy addition to a portfolio with an eye toward future dividends-and future triumphs. 🌱

Read More

2025-10-11 11:03