Should you buy On Holding stock? (Huge growth)

On Holding stock analysis. ONON stock.
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ON Holding sells the popular on cloud running shoes that have taken the world by storm.

Right now, the company is valued at roughly 7.8 billion swiss francs. Revenue over the last 12 months was 1.2 billion, net income was 58 million and adjusted ebitda was 165 million.

That means the company is valued at 6.4 times revenue, 139 times earnings or 47 times EBITDA.

That’s a steep valuation and the reason is that On is seeing exceptional growth.

Revenue for 2022 was 69% higher than 2021. And the company expects to grow another 39% this year.

That’s some of the strongest growth in the market right now and this growth is backed up by positive product reviews and strong google search data.

On top of that, On reports strong gross margins of 56% which are higher than both Nike and Lululemon. The company is clearly building a strong brand with an additional focus on sustainability. Its latest shoe, for example, contains 44% recycled materials.

On the other hand, rapid growth costs money and On’s negative cash flow stems from expansion in China and opening up stores. With only 371 million in cash on the balance sheet there’s a reasonable chance the company will need to raise more capital to pay for growth.

There’s no doubt that On running will be a bigger business in the future. The question is what type of returns are on offer from the stock.

Let’s assume that On grows revenue 40% this year, 30% the following year and then continues to compound at 20%. In that scenario, On would hit revenues of 11.5 billion by 2033. Apply a 10% net margin similar to Nike and we get 1.2 billion of net income in 10 years time.

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