Home Stocks On Holding Stock Races Higher Amid Soaring Income and Margins – But is it a Buy?

On Holding Stock Races Higher Amid Soaring Income and Margins – But is it a Buy?

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Key points

  • Footwear retailer On Holding enjoyed an exceptional Q2, sending its share price soaring
  • However, the upturn may have compromised the value of the stock from a value investment perspective
  • With this mixed picture, we examine whether On Holding stock is a buy right now

The fundamentals are impressive, but is “the Swiss Nike” a miss from a value investment perspective?

On Holding (NYSE:ONON) stock jumped 8% Tuesday morning following well-received Q2 2024 financials, with revenue and net income soaring 27.8% and 834.3%, respectively.

“We are coming out of the summer with a lot of confidence and are extremely excited about On’s trajectory,” said David Allemann, the Swiss footwear retailer’s co-founder and executive co-chairman.

On Holding’s total net sales grew 27.8% year over year to 567.7 million Swiss francs, beating Wall Street’s consensus call for 561.6 million. A particular highlight was the firm’s 66.6% jump in apparel sales during the quarter.

There was a stark absence of weaker points in On Holding’s quarterly result. Even more significantly, the company’s net income catapulted 834.3% year over year to 30.8 million Swiss francs, versus just 3.3 million Swiss francs in the second quarter of 2023.

Furthermore, it appears that On Holding is earning more income from the products it sells. This can be measured by the company’s net income margin, which more than doubled to 11.4% in Q2 2024 from 5.5% in the year-earlier quarter.

Additionally, On Holding saw notable success through its online channels, with net sales surging 33.1% versus 2023’s first half to 399.9 million Swiss francs.

Analysis: weighing On Holdings’ results, guidance and valuation

Despite these impressive results, investors should resist jumping into any hasty trades. Budget-conscious investors might not the On Holding stock valuation, even if the company’s recent results are hard to argue with.

All in all, On Holding has earned its bragging rights. The company touted a very strong H1 2024 that included two consecutive record top-line quarters and continued strong demand across all channels and regions.

Looking ahead, On Holding reiterated its full-year 2024 guidance of at least 30% net sales growth on a constant-currency basis and net sales of 2.26 billion Swiss francs. Of course, there’s no guarantee that On Holding will actually achieve these lofty objectives.

While momentum-focused traders might celebrate On Holding’s quarterly results, more cautious investors may object to the company’s valuation. Indeed, value seekers might find it off-putting that On Holding’s GAAP trailing 12-month price-to-earnings (P/E) ratio is above 90, while the sector median P/E ratio is 17.29.

One could also point to On Holding’s trailing 12-month price-to-sales (P/s) ratio of around six, versus the sector median P/S ratio of 0.87, but there’s no need to belabor the point. Suffice it to say, On Holding is richly valued in the financial markets.

Enter your position cautiously

Thus, we return to the age-old question of what to do when a company is performing extremely well but the market already knows it. We certainly saw the ‘high P/E ratios don’t matter anymore’ argument play out as Nvidia (NASDAQ:NVDA) stock continued to march higher despite the GPU maker’s lofty valuation.

In such cases, cautious but optimistic investors can simply purchase a small number of shares. That way, you can still get portfolio exposure to On Holding, the “Swiss Nike,” while hedging your bets through prudent position sizing.

Our Editorial Standards

At ValueWalk, we’re committed to providing accurate, research-backed information. Our editors go above and beyond to ensure our content is trustworthy and transparent.

David Moadel
Financial Writer

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