On Holding: The Athleisure Stock Analysts Say Could Jump 40%

The stock market’s cyclicality is often influenced by which sectors in the U.S. economy gain popularity enough to attract new attention and capital. However, the market’s efficiency can sometimes be thrown off by all the excitement and strong opinions. When imbalances occur, it creates opportunities for savvy investors to step in and capitalize on the most significant chances that arise.

Today’s cycle appears to be centered on one area of the economy, with artificial intelligence and semiconductor companies taking center stage and leaving everyone else behind. However, examining the forgotten retail sector can be very beneficial for investors in the next few months and quarters.

With recent examples of momentum inside the SPDR S&P Retail ETF (NYSEARCA: XRT) as the group showcased a rally of up to 24% over the past quarter, investors can now count on bullish momentum to get them on the winning side of history.

However, not all stocks offer the same return profile, and that is where shares of On Holding (NYSE: ONON) stand out, offering a great setup in both growth and value.

On Holding Stock: The Odd One in the Group

When it comes to the market's athleisure brands, investors can quickly screen through a price action filter to find out which ones deserve their attention, as well as the rest of the market’s. Comparing On Holding to names like Lululemon Athletica Inc. (NASDAQ: LULU) and Nike Inc. (NYSE: NKE) can make this entire task a lot easier.

On Holding now trades at up to 85% of its 52-week high, whereas Lululemon is still struggling, down at 59% of its own relative highs. When it comes to Nike, the competition becomes tighter for investors to differentiate, as the $112 billion giant is now up to 82% of its 52-week highs.

However, the mere size difference of the two firms is exactly where investors will get their payouts. Nike is nearly ten times larger than On Holding, whose market capitalization is only $17.1 billion today, creating a much better risk-to-reward ratio in terms of how easy it would be for this smaller name to grow its size percentage-wise.

This price action indicates to investors that On Holding is the leader among the larger athleisure names and the best positioned for continued upside in terms of market capitalization gains. Price action aside, other market fundamentals are at play, helping investors consider this stock as a potential winner.

On Holding stock now trades at a premium price-to-book (P/B) multiple of up to 20.0x to command a steep premium above Nike’s 8.0x P/B valuation. While some investors may call this overextended or expensive, seasoned market participants understand that the market is often willing to overpay for the names it believes will outperform the peer group.

With this evidence in hand, investors now need to justify this view from the market and truly see if there are more fundamental reasons to consider buying this stock against the other giants in the retail space.

Financials Running on All Cylinders

When investors examine On Holding's latest quarterly earnings results, they will find several reasons why the market is now willing to overpay for this stock. When it comes to one of the most important metrics, revenue, On Holding reported up to 43% annual growth.

This massive growth can be attributed to the brand’s rapid takeover of market share worldwide. Investors can now likely recall seeing On running shoes in fields such as medicine, at public events, or even during a quick trip to the nearest gym. On Holding’s brand seems on par with Nike and Lululemon today, yet the market cap isn’t.

This presents an opportunity to close the gap, as evidenced by the company’s gross profit margin. On Holding’s wholesale division increased its share of the net to 38.1%, bringing efficiency and economy of scale to a much higher gross profit margin of 59.9%, one of the highest in the industry.

Naturally, this should have resulted in a sharp increase in earnings per share (EPS), but that metric actually fell. The decline in earnings is due to the company reporting a net loss caused by currency exchange rates, as the dollar has been weakening since late 2024. Therefore, this is not an issue that investors need to worry about.

On an adjusted basis, the company would have actually delivered a massive earnings beat, which is why the stock did not drop at all, and also why Jay Sole (an analyst from UBS Group) decided to assign a $75 per share valuation after the quarterly announcement.

From today’s price, this valuation target would call for up to 40% of additional upside, proving the market’s view correct and also creating an opportunity for large institutional buyers to jump in on the renewed momentum.

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