On Holdings Could Sprint Even Higher

Key Points

• On Holdings falls after solid results and guidance opening a buying-opportunity for growth investors. 
• The company reported a high-double-digit revenue gain and a triple-digit increase in earnings. 
• Analysts have been raising their targets, if that trend continues, ONON's uptrend will continue as well. 

On Holdings NYSE: ONON shares are down about 10% following the Q1 release, but this is an opportunity for investors. The Q1 results are excellent and suggest nothing more than continued excellence as the runner-specific company gains traction. The sell-off in shares is more likely to be profit-taking than anything else, although short interest is elevated at 8.0%. Investors looking for growth in 2023 may be interested in this company because it sells lifestyle, fashion, and incredible products and could easily become the next Lululemon NASDAQ: LULU. 

On Holdings Has Robust Quarter, Guides Higher 

On Holdings has nothing to be ashamed of with its Q1 report. The company reported CHF420.2 million in net revenue for a gain of 78.3% compared to last year. This is well above the consensus and driven by strength in all channels, categories, and regions. Internal results show shoe sales are up 80%, apparel 49%, accessories up 52.3%, Direct-to-Consumer up 64.3%, and wholesale up 86%. 

The margin news is even more impressive due to supply-chain normalization and improved freight availability. The gross margin grew by 650 basis points, driving a 100% profit increase. This is compounded by a 440 basis point improvement in net income margin, which left income up 209% compared to last year. The strength carried through to the bottom line but was offset by 1-offs to leave the GAAP eps at CHF0.14 or up 180% compared to last year. Compared to the marketbeat.com consensus, the GAAP earnings are nearly double. 

The guidance is also robust, and no reason for share prices to have fallen 10%. The company reports a strong order book and the expectation for solid growth in the back half of the year. Execs say interest is high for new and upcoming product launches and have raised the guidance accordingly. The company now expects revenue to top CHF1.74 billion, about 70 basis points above the consensus based on a 1 for 1.15 conversion rate. 

Marketbeat.com’s analyst tracking tools have not picked up new commentary, but market participants should assume updates are coming. Until then, the 14 analysts with current ratings have the stock pegged at Moderate Buy with a price target that has firmed compared to last month and last quarter. The price target of $29 assumes the stock is fairly valued after its 10% plunge but may move higher now that Q1 results are in. The caveat is that a weakening outlook for broad-based consumer demand may weigh on their outlook. 

Institutions Turned The Tide For On Holdings 

The institutions don’t own a lot of On Holdings at only 17% of the stock, but they have been buying it for the last year. The balance of activity is worth about 3% of the market cap with shares near $31 and helped to put a bottom in the price action. Assuming this trend continues, the institutions should help put a bottom in the stock now that results are in and there is already evidence of buying. The initial 10% drop was met by bargain hunters who lifted the action off the early lows. 

Shares of ONON are showing support at the $30 level. This is below the short-term moving average but consistent with a consolidation zone formed earlier in the year. Assuming this zone remains firm, the stock should consolidate at this level. If the analysts begin raising their targets, it may resume its uptrend.