On Holding (NYSE:ONON) is an intriguing company in a remote location, but there’s a major risk for investors in 2024. Sure, On Holding’s bullet points include some positive data, but I am bearish on ONON stock after noticing a negative surprise in the numbers.
On Holding is basically Switzerland’s version of Lululemon (NASDAQ:LULU). In other words, On Holding operates a retail chain of sportswear stores, with an emphasis on footwear, and also has an online presence.
Within the past week, a number of analysts established their price targets for ONON stock. These price targets included $38 from Wedbush, $34 from Redburn Atlantic, and $38 from Baird. However, these analyst firms may end up revising their price targets lower based on some recently released information. So, hold on as we figure out what’s going on with On Holding.
Taking Note of On Holding’s Top-Line Growth
Yesterday, On Holding released its financial results for Q4 and Fiscal 2023. In terms of top-line growth, On Holding certainly delivered some satisfying statistics.
To be more specific, On Holding’s revenue increased by 21.9% year-over-year to CHF 447.1 million (CHF is short for Swiss francs). That’s not even the best part, though. Impressively, On Holding’s net sales through the company’s direct-to-consumer (DTC) sales channel, which primarily means online sales, increased by 38.2% to CHF 206.6 million.
What about the company’s margins, though? There’s positive news from On Holding on that front, as well. In Q4 of Fiscal 2023, On Holding’s gross profit margin increased to 60.4% versus 58.5% in the year-earlier quarter.
In some ways, On Holding had a great year in FY2023 overall. Notably, the company grew its full-year revenue by 46.6% year-over-year to CHF 1.792 billion. Also, for the full year, On Holding reported a gross profit margin of 59.6% — not too shabby, I’ll admit.
The point is that On Holding hasn’t had too much difficulty selling its footwear and other sportswear, especially online. Perhaps On Holding earned some bragging rights. The company’s co-CEO and CFO, Martin Hoffmann, actually did indulge in some bragging when he declared that On Holding brought “efficiency and profitability to new heights” in FY2023.
Hold on, On Holding. Did the company actually achieve “new heights” in terms of profitability? Instead of just going along with whatever a press release says, I encourage you to always double-check the data, so let’s do that right now.
On Holding Stock Tumbles on Pivot to Unprofitability
Hoffmann could boast all day long about his company if he wanted to, but he couldn’t stop ONON stock from tumbling as much as 18.6% at one point yesterday. Granted, the stock has recovered since, but still, the question remains: what happened, exactly?
Evidently, the market wasn’t very pleased with On Holding’s bottom-line results. In the fourth quarter of Fiscal 2023, On Holding incurred an adjusted net loss of CHF 16.3 million; this stands in startling contrast to the company’s net income of CHF 7.5 million in the year-earlier quarter.
Thus, On Holding certainly didn’t end FY2023 achieving “new heights” of profitability. On Holding actually had a pretty decent streak of per-share-profitable quarters going, but there’s no denying that the company lost money in Q4 last year.
This isn’t to suggest that Hoffmann was actually lying. On Holding did turn a profit on a full-year basis. Still, informed investors should wonder why the company slumped into income-negative territory in the fourth quarter.
On Holding’s profit margins, as mentioned earlier, seem to be perfectly fine. Furthermore, the company evidently doesn’t have a major product-inventory problem. On that topic, Hoffmann assured, “We entered ’24 with a much stronger inventory position, which will allow us to control the supply into the channels.”
I suspect that On Holding might just be spending more capital than it ought to. In Fiscal Year 2023, the company’s cost of sales increased by 34.9% year-over-year. Also, during that same time frame, On Holding’s selling, general, and administrative expenses ballooned 47.9%. Consequently, investors should insist that On Holding’s management announce a specific cost-containment plan for the current and coming quarters.
Is ONON Stock a Buy, According to Analysts?
On TipRanks, ONON comes in as a Strong Buy based on 11 Buys and three Hold ratings assigned by analysts in the past three months. The average ONON stock price target is $42.54, implying 29.8% upside potential.
If you’re wondering which analyst you should follow if you want to buy and sell ONON stock, the most accurate analyst covering the stock (on a one-year timeframe) is Alexandra Straton of Morgan Stanley (NYSE:MS), with an average return of 15% per rating and an 86% success rate. Click on the image below to learn more.
Conclusion: Should You Consider ONON Stock?
On Holding stock was approximately $20 a year ago, and it ran all the way to $35+ before recently pulling back. As I see it, the stock is vulnerable to downside movement, especially in the wake of On Holding’s less-than-ideal bottom-line results.
That’s why I’m bearish about ONON stock and am not considering it for a purchase today. It’s not a bad idea, though, to continue monitoring On Holding to see if the company’s management gets serious about reducing expenditures and getting back to a quarterly income-positive status.
