On Holding stock is doing well; but does ONON have more upside?

On Holding stock price is hovering near its highest level on record as the company’s growth trajectory gains momentum. ONON shares surged to an all-time high of $53.97 on Monday and then pulled back to $52.6.

It has jumped by over 95% this year, making it one of the best-performing companies in the industry. Notably, it is beating companies like Nike, Adidas, and Lululemon, which are all struggling this year. 

On Holding stock soars after earnings

On Holding is a fast-growing company in the sports clothing industry, where it manufactures shoes and apparel. It is backed by Roger Federer and has become a global sensation, which has pushed its market cap to over $16 billion. This valuation makes it almost five times bigger than Under Armour, a company that was once seen as the biggest competitor to Nike.

On Holding stock moved sideways after the company published strong financial results that demonstrated its growth trajectory was continuing. 

Its net sales jumped by 32.3% in the third quarter and reached CHF 635 million. Most of this growth was mostly because of its direct-to-consumer business, which expanded by almost 50% during the quarter. 

At the same time, ON continued to focus on profitability as its gross margin jumped to 60.3%, helped by its DTC business and its focus on full pricing. This is unlike other companies that have achieved substantial momentum because of its discounts. It sees the gross margin rising to 60.5% this year, a figure that will be higher than Lululemon’s 58.4% and Nike’s 44.9%. 

Most importantly, the company is seeing more demand for its products, which explains why the management raised its forward guidance. It sees its net sales rising to CHF 2.29 billion or $2.4 billion this year. Its EBITDA margin will be between 16% and 16.5%. 

Is ONON overvalued?

A key concern among investors is that On Holding is a highly overvalued company since its valuation is almost half that of Lululemon Athletica.

On Holding also has stretched valuation metrics. It has a forward price-to-sales ratio of 6.47, higher than the industry median of 1.0. Also, its forward P/E ratio of 68 is much higher than the sector median of 18.

Proponents believe that the company’s valuation can be justified because of its strong growth and the fact that it has broken even. Its net profit margin of 7.6% will likely grow and beat Nike’s and Lululemon’s 10.6% and 16%. 

On Holding is expected to make $3.3 billion in 2025. If it achieves that margin, it means that its net income will be over $528 million. That would give it a forward P/E ratio of 30, which is reasonable for a company that is seeing substantial growth.

The average On Holding stock price forecast is $52.88, a few points above the current level. 19 of 24 analysts tracking the company was bullish. 4 of them have a hold, while 1 has a sell rating. Some of the most notable bullish analysts are Telsey Advisory, UBS, Truist, Piper Sandler, and TD Cowen.

On Holding stock price analysis

ONON chart by TradingView

The daily chart shows that the ONON share price peaked at $53.97 on Tuesday. It has remained above the 50-day and 100-day Exponential Moving Averages (EMA).

The stock has also formed a rising wedge pattern, a popular bearish sign in the market. Most notably, it has formed a hanging man pattern, a crucial bearish candle. Also, the stock has formed a double-top pattern. 

Therefore, there is a likelihood that the stock will retreat in the coming weeks. If this happens, it could drop to the next key support at $46.35, its lowest swing on November 1. A move above the key resistance at $54 will point to more gains ahead.

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