On Holding's Long Runway For Growth Looks Intriguing

Investment Thesis - ONON is focusing on increasing brand recognition through innovative product designs and success in elite athletics, leveraging its "lightning and rain strategy" to broaden consumer adoption [1] - The company has a growing list of elite athletes endorsing its products, which is expected to enhance brand visibility, especially during the upcoming Summer Olympic Games in Paris [1][22] - ONON's footwear lineup has been updated, and the company is maintaining pricing discipline, evidenced by the absence of discounts in stores [1][5] - The company has significant growth potential, with expectations of maintaining stellar free cash flow growth and outpacing GDP growth rates in the long term [1][13] Market Position and Competitive Landscape - The athletic footwear and apparel market is highly competitive, with consumer preferences being volatile [1] - ONON's pricing power is demonstrated by its lack of discounting, contrasting with competitors like Under Armour and Hoka, which frequently run sales [5][25] - The company is currently a niche player but aims to expand into broader demographics and product categories to compete with larger shoemakers [1][5] Financial Performance and Projections - ONON has achieved a revenue growth rate of 58% CAGR and operating income growth of 124% CAGR since 2019, with free cash flow transitioning from a loss of 287.3 million Swiss francs in 2022 to a gain of 271.5 million in the TTM period [24] - The company turned profitable in 2022 and has been expanding its operating and free cash flow margins [8] - Future revenue growth is projected at 30% for 2024, with a gradual decline expected thereafter, while operating margins are anticipated to expand to 32% by 2034 [10][11][33] Product Development and Innovation - ONON's CloudTec technology is a key differentiator that could enhance its market position, similar to Hoka's trajectory from shoes to a complete apparel line [16] - The company is investing in marketing and product development to drive brand awareness and expand its offerings, particularly in the apparel segment, which currently contributes only 5% of revenue [25][5] Brand Recognition and Athlete Endorsements - The "lightning" aspect of ONON's strategy focuses on winning at elite levels, while the "rain" aspect aims to reach everyday athletes and casual consumers [28] - Notable athletes, including marathon winners and tennis champions, are endorsing ONON, which could significantly boost brand recognition during high-profile events like the Olympics [22][23] Valuation Metrics - ONON's current valuation appears high, with a forward P/E of 46x and a P/S of 4.8x, but its PEG ratio of 1.21 indicates strong earnings growth potential [26] - The company is modeled to achieve substantial free cash flow growth, which could justify its current valuations if growth targets are met [13][27]