To The Moon

From Trainers to Operating Leverage: Why I Think On Holding Is Being Valued Like a Platform, Not a Brand

$On Holding AG(ONON)$ rarely gets discussed in the same breath as software platforms, yet that is exactly how Wall Street is beginning to frame it. I find that intriguing, because on the surface this is still a Swiss sportswear company selling trainers, apparel and the occasional sharply priced jacket. Look closer, however, and the market’s enthusiasm starts to make sense—this isn’t fashion infatuation, it’s a numbers-driven bet on operating leverage.

Not a shoe story—an operating system in premium apparel form

The share price tells a familiar growth-stock story. After peaking above 64, the stock has pulled back into the mid-40s, leaving it down materially over the past year. That retreat has prompted predictable hand-wringing about valuation. I think that debate misses the real question. Investors are not valuing last season’s shoes; they are valuing a business model that is beginning to scale more like an engine than an outfit.

Growth That Refuses to Behave Like Retail

What immediately stands out to me is how stubbornly On refuses to behave like a normal consumer goods company. Revenue over the last twelve months sits at roughly 2.9 billion, growing close to 25% year on year. Plenty of sportswear brands have delivered similar top-line growth at some point. Very few have done so while simultaneously expanding profitability.

Operating margins are now approaching 16%, with net margins close to 8%. Quarterly earnings growth of nearly 290% year on year is the sort of number that makes you double-check the spreadsheet, not because it looks suspicious, but because retail companies are not meant to do that. Growth at this pace is usually messy, margin-dilutive and operationally painful. On is experiencing the opposite.

This is where the 'platform-like' logic begins to take shape. Incremental revenue is arriving faster than incremental cost, allowing scale to work in shareholders’ favour. That dynamic is far more reminiscent of high-quality growth businesses than of traditional apparel companies that perpetually chase volume.

The market’s reassessment shows up in trend strength and volatility compression.

Volatility tightens as expectations reset around a scaling business

Premium Pricing Without the Luxury Fragility

Another pillar supporting Wall Street’s enthusiasm is pricing discipline. On has maintained a premium positioning in a consumer environment that has been distinctly unfriendly to discretionary spending. Gross profit of around 1.8 billion on under 3 billion of revenue implies margins that sit closer to luxury-adjacent brands than to mainstream sportswear.

What I find quietly impressive is that this premium has not relied on aggressive discounting to keep inventory moving. Full-price sell-through remains strong, suggesting consumers are paying for perceived performance, not just aesthetics. That distinction matters. Performance credibility is far stickier than fashion appeal, which tends to vanish the moment the next trend walks past.

The direct-to-consumer mix amplifies this advantage. DTC is often discussed as a margin lever, but I see it increasingly as an intelligence asset. Better data means fewer inventory mistakes, faster product iteration and tighter control over brand presentation. In a category where misjudged demand can destroy profitability, that feedback loop is worth more than a marketing slogan.

Cash Flow: The Quiet Enabler

One detail that deserves more attention is On’s cash generation. Operating cash flow of just over 415 million and levered free cash flow close to 380 million tell me this is not a company funding growth with hope and equity issuance. It is paying its own way, which, let’s be honest, is shockingly rare in anything routinely described as 'high growth'.

The balance sheet reinforces that impression. With more than 1 billion in cash against roughly 500 million of debt, and a current ratio comfortably above 2, financial flexibility is not a constraint. That matters because it allows management to invest aggressively in apparel, athlete partnerships and geographic expansion without compromising discipline. The growth engine is not being fuelled by leverage; it is being fuelled by execution.

The 'Daughter Brand' Strategy in Action

The expansion into apparel and professional tennis has prompted some accusations of brand stretch. I see it differently. This looks to me like a deliberate 'daughter brand' strategy, where footwear acts as the parent category that establishes trust, and apparel and tennis act as monetisation layers that build on that trust.

This is not a simple line extension. Footwear earns performance credibility at the point of use; apparel then benefits from that credibility at a higher margin and often with lower customer acquisition cost. Tennis plays a particularly strategic role here. It reinforces elite performance credentials while opening the door to premium lifestyle products that travel well beyond the court.

What is often missed is how this approach expands customer lifetime value rather than merely increasing unit sales. Once consumers buy into the performance narrative, adding apparel feels like progression, not upselling. That structural shift is far more durable than chasing volume through ever-broader product lines.

Competitive Landscape: A Different Playing Field

Comparing On directly with $Nike(NKE)$ or $adidas AG(ADDYY)$ is tempting but unhelpful. Those companies are optimised for global scale and wholesale distribution, which also makes them slower and more constrained. On operates in a narrower lane, but with far greater control over brand, pricing and data.

The more interesting competitive question is what happens if an incumbent gets this right. Imagine a scenario where Nike successfully launches a genuinely premium cushioning technology, protects margins, and scales it globally at speed. That would put pressure on On’s technological differentiation very quickly. Alternatively, consider Asia. On’s European aesthetic and premium narrative may not translate seamlessly in markets where brand recognition and price sensitivity play different roles.

These are not theoretical risks. They are plausible breakpoints in the story. What reassures me is that On is not competing on price or ubiquity. Its defensibility lies in a tight integration of product, brand and channel, which is harder to replicate than a single piece of technology.

Valuation: Expensive or Misunderstood?

A trailing P/E above 50 makes On look expensive through a conventional retail lens. The forward P/E closer to the high-20s tells a more nuanced story. The market is clearly pricing in rapid earnings growth, and the current margin trajectory supports that assumption.

Price-to-sales near 8 and EV/EBITDA around 30 place the stock firmly in growth territory. The share price has underperformed over the past year, even as the business has improved operationally. That disconnect suggests expectations have already cooled. Meanwhile, the three-year return north of 100%, comfortably outpacing the S&P 500 over the same period, reflects genuine value creation rather than a broad growth-stock tailwind.

Short interest remains elevated, indicating persistent scepticism. That scepticism is understandable given the stock’s high beta and volatility. It is also what makes the risk-reward interesting if execution continues.

Behind the price swings, accumulation zones reveal real investor conviction.

Accumulation zones suggest conviction beneath a cooled valuation

Risks Worth Respecting

This is not a low-risk investment. A beta above 2 ensures the stock will amplify market swings, and any growth hiccup will be punished. Apparel expansion carries execution risk, and premium positioning can crack quickly if consumer sentiment deteriorates.

The key distinction, in my view, is that these risks sit alongside a profitable, cash-generative business with expanding margins. This is not growth at all costs. It is growth with a margin of safety built into the income statement.

Compounding momentum: where premium brand meets scalable economics

My Verdict: More Engine Than Outfit

On is not a platform in the software sense, and pretending otherwise would be sloppy analysis. What it is building, however, is closer to a platform than most consumer brands ever achieve: a self-funding engine where data, brand and margin structure compound together.

If management executes over the next three years, I can see a business with materially higher revenue, structurally higher margins and a broader ecosystem that monetises performance credibility across categories. In that scenario, today’s valuation looks less like optimism and more like anticipation.

I am not buying On for the shoes. I am watching it because, quietly and without much fuss, it is learning how to run like a system rather than dress like a trend.

@TigerStars @Daily_Discussion @Tiger_comments @Tiger_SG @Tiger_Earnings @TigerClub @TigerWire