Cloudboom Max, Zendaya Collaborations, And Global Expansion Will Drive Future Success

Key Takeaways

• Strong brand positioning, D2C expansion, and geographic growth in Asia Pacific and other regions are expected to increase revenue and market share.
  
• Innovations in product lines and operational improvements are likely to drive profitability and enhance supply chain efficiency.
  
• On Holding's ambitious global expansion and D2C reliance pose risks to margins and financial stability amidst competition and currency volatility.

Catalysts

Engages in the development and distribution of sports products worldwide.

• On's premium brand positioning, strategic partnerships, and impactful presence in global markets are expected to enhance brand strength and consumer engagement, potentially boosting revenue. This focus on building a strong global sportswear brand aims to drive long-term sales growth and improved net margins.
  
• The company's expansion of Direct-to-Consumer (D2C) channels and increased D2C sales are supportive of higher gross profit margins and overall revenue growth. The D2C share reached a record 48.8% in 2024, indicating potential for improved profitability through direct sales.
  
• On's significant growth in newer markets, especially in Asia Pacific, and plans to extend its retail presence in Southeast Asia and the Middle East are anticipated to drive revenue growth. This geographic expansion offers potential for increased market share and revenue diversification.
  
• The development of new products, such as the LightSpray franchise and the Cloudboom Max for everyday runners, along with collaborations with high-profile figures like Zendaya, are expected to fuel product innovation and sales growth, positively impacting revenue and earnings as these become key contributors.
  
• Investments in operational excellence, such as the fully automated warehouse solution in Atlanta, are likely to enhance supply chain efficiency and scalability, reducing costs and potentially positively affecting net margins and earnings.

On Holding Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming On Holding's revenue will grow by 25.5% annually over the next 3 years.
• Analysts assume that profit margins will shrink from 10.5% today to 10.0% in 3 years time.
• Analysts expect earnings to reach CHF 456.9 million (and earnings per share of CHF 1.43) by about March 2028, up from CHF 242.3 million today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting CHF576.8 million in earnings, and the most bearish expecting CHF355.6 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 50.9x on those 2028 earnings, down from 54.2x today. This future PE is greater than the current PE for the US Luxury industry at 16.6x.
• Analysts expect the number of shares outstanding to grow by 0.51% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.53%, as per the Simply Wall St company report.

On Holding Future Earnings Per Share Growth

Risks

• On Holding's potential overreliance on its D2C channel could expose the company to risks if consumer preferences shift or if there are operational disruptions, impacting both revenue growth and gross margins.
  
• The company's ambitious global expansion strategy, including retail store openings and market penetration like China, could lead to significant capital expenditure and operational challenges, which may affect net margins and cash flow if not executed efficiently.
  
• Facing increased competition from larger brands reinvigorating their running franchises poses a risk to On Holding's market share, potentially impacting their future revenues and profitability.
  
• The company's investment in building brand partnerships with prominent figures and cultural events involves high marketing costs without guaranteed long-term returns, posing a risk to maintaining adjusted EBITDA margins.
  
• On Holding's potential volatility from currency fluctuations, particularly between the USD and CHF, may impact financial results, affecting revenue and profit figures if currency movements are unfavorable.

Valuation

• The analysts have a consensus price target of CHF65.047 for On Holding based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of CHF73.66, and the most bearish reporting a price target of just CHF51.79.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be CHF4.6 billion, earnings will come to CHF456.9 million, and it would be trading on a PE ratio of 50.9x, assuming you use a discount rate of 7.5%.
• Given the current share price of CHF46.28, the analyst price target of CHF65.05 is 28.9% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.