By Avi Salzman
On Holding stock has moved to the back of the pack this year. The next few months could see it sprint into the lead.
It's been a tough year for most sneaker stocks, including Swiss footwear and clothing company On. President Donald Trump imposed tariffs on goods from countries all over the world. Very few shoes are made in the U.S., and the levies on countries like Vietnam were bound to hurt the industry. But On showed in its latest quarterly release Wednesday that the tariffs haven't slowed the company down. It was even able to increase its prices without turning customers off -- a sign that its efforts to market itself as a premium brand are paying off.
Shares of On jumped 18% on Wednesday after the company posted better-than-expected earnings and lifted its annual guidance. Nonetheless, the stock is still down 24% this year, and some analysts think the weakness could be a buying opportunity.
"In a market where sentiment on the Consumer/Retail sector broadly is negative...On Holding stands out as one of the highest growth and margin expansion stories for 2026," wrote Morgan Stanley analyst Alex Straton, who rates the shares at Overweight with a $70 price target. On was recently trading at $42.
There's nothing wrong with On's sneakers. They've attracted a wide following thanks to their light weight and versatility. More recently, the company has won acclaim for high-performance footwear -- the woman who won this year's New York Marathon was wearing Ons.
But there's been less to celebrate about its stock. The trade war hasn't helped, and fears of increasing competition from companies like Nike have hurt too. Investors have also turned away from consumer brands, focusing instead on the artificial-intelligence trade. The Consumer Discretionary Select Sector SPDR exchange-traded fund is up just 5% this year, about one-third of the S&P 500's gain.
On, however, has growth potential that sets it apart from the average consumer stock. Management expects sales to rise 23% next year, and it could be underestimating its prospects -- the company has a record of being conservative on guidance. Price increases lifted gross margins to 65.7% in the quarter, up from 60.7% a year ago and well ahead of Nike's 41.5%. And while On isn't anticipating broad price increases next year, it sees margins holding firm. "We have now really achieved a new level on gross profit margin that we also consider sustainable," said CEO Martin Hoffmann on the earnings call.
On has also diversified its customer base. The company's fastest sales growth is coming in Asia, where revenue jumped 109% in the latest quarter. It opened a store in Bangkok during the quarter that proved to be its most successful opening ever. While sales were heavily tilted toward the American market a year ago, the company's international sales are now almost equal to its U.S. sales. It's had success selling through wholesale channels and directly to consumers.
Analysts expect On's earnings per share to jump 90% next year. The stock's drop this year has left it trading at 25.5 times its expected 2026 earnings, not much more expensive than the S&P 500.
Don't look now, but On stock could be getting ready to run.
Write to Avi Salzman at avi.salzman@barrons.com
This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.
(END) Dow Jones Newswires
November 14, 2025 02:00 ET (07:00 GMT)
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