On Holding AG (ONON) presents a compelling investment opportunity within the premium athletic footwear and apparel sector. Our analysis suggests a robust growth trajectory, driven by innovative product development, a strong direct-to-consumer (DTC) strategy, and increasing brand recognition. We initiate coverage with a Buy rating and a 12-month price target of $48.00, representing a potential upside of approximately 25% from the current market price.
Industry Overview
The global athletic footwear market is experiencing sustained growth, fuelled by rising health awareness and the increasing popularity of athleisure wear. Euromonitor forecasts a compound annual growth rate (CAGR) of 5.1% for the global sports-inspired footwear market from 2023 to 2028, reaching a value of $431 billion.1 Within this market, the premium segment, where ONON operates, is outpacing overall growth, driven by consumer demand for high-performance and stylish products. This dynamic creates a favourable backdrop for ONON’s continued expansion.
Company Analysis
ONON differentiates itself through its proprietary CloudTec® cushioning technology, offering a unique performance benefit. This technological advantage, combined with a focus on sustainable manufacturing practices, resonates with a growing consumer base seeking both performance and ethical considerations. The company’s strategic emphasis on DTC sales contributes to higher margins and allows for closer engagement with its customer base. ONON’s DTC penetration rate, currently at 45% of total sales, surpasses the industry average and provides a foundation for sustained profitability.
Investment Thesis
Our investment thesis rests on three key pillars: 1) Continued innovation in performance technology, enabling ONON to capture market share within the premium segment. 2) Expansion of the DTC channel, enhancing brand loyalty and driving margin expansion. 3) Growing brand awareness globally, particularly in key markets like North America and Asia-Pacific. These factors position ONON for sustainable long-term growth, exceeding the industry average.
Valuation & Forecasts
We employ a discounted cash flow (DCF) model to arrive at our target price of $48.00. Our base case assumes a 5-year revenue CAGR of 28%, driven by continued market share gains and DTC expansion. We project an EBITDA margin expansion to 14% by 2028, reflecting operating leverage and the higher profitability of the DTC channel. Sensitivity analysis around key variables, including revenue growth and discount rate, supports our valuation range.
| Scenario | Revenue CAGR (5-year) | Terminal Growth Rate | Discount Rate (WACC) | Implied Share Price |
|---|---|---|---|---|
| Base Case | 28% | 3% | 10% | $48.00 |
| Upside Case | 32% | 4% | 9% | $60.00 |
| Downside Case | 20% | 2% | 12% | $35.00 |
Our valuation is further supported by relative valuation metrics. ONON currently trades at a price-to-sales (P/S) ratio of 6.0x, compared to a peer group average of 4.5x. While this premium reflects the market’s recognition of ONON’s growth potential, we believe it is justified given the company’s superior growth prospects and strong brand momentum.
Risks
Key risks to our investment thesis include increased competition within the premium athletic wear market, potential supply chain disruptions, and macroeconomic headwinds impacting consumer spending. While we acknowledge these risks, we believe ONON’s strong brand positioning, innovative product pipeline, and diversified geographic presence mitigate these potential challenges.
Recommendation
We initiate coverage on ONON with a Buy rating and a 12-month price target of $48.00. We believe ONON is well-positioned to capitalise on the secular growth trends within the premium athletic wear market. The company’s innovative product offerings, strong DTC strategy, and growing brand awareness support our positive outlook. We recommend investors take a long position in ONON.
Citations
1 Euromonitor Passport, Sportswear in World, accessed September 2023.
