On Holding AG

Overview

This report applies Joel Greenblatt's Magic Formula approach to analyze On Holding AG (ONON), a rapidly growing premium sportswear company. We evaluate the business quality through Return on Capital and valuation through Earnings Yield, following a systematic, patient, contrarian framework.

Business Quality Assessment

On Holding AG boasts an exceptional Return on Capital of approximately 31%, driven by its asset-light premium brand model, high gross margins (~63%), and efficient working capital management. The company generates high returns because it sells premium-priced footwear and apparel with strong brand desirability, allowing full-price sales and minimal discounting. Its invested capital base is modest relative to earnings, as it outsources manufacturing and uses lease-operated stores. Historical ROC trends are robust, with gross margins expanding from 60% to 64% and adjusted EBITDA margins up from 16.7% to 21.0% in Q1 2026. The narrow economic moat from brand intangible assets supports sustainable high returns, though rapid expansion into apparel and APAC markets will test capital allocation discipline.

Valuation Analysis

Earnings Yield = EBIT / Enterprise Value. Based on FY2025 reported operating income of CHF 377M and an estimated enterprise value of CHF 9.2B (market cap CHF 9.65B minus net cash of CHF 439M), the trailing earnings yield is 4.1%. This is below the 6% threshold Greenblatt typically seeks, and significantly lower than current risk-free rates. Using normalized or forward estimates (EBIT ~CHF 500M+), yields around 5.4%, still unattractive. The stock trades at a forward P/E of 16.8x, reflecting growth expectations but not deep value. In Magic Formula terms, it is not cheap relative to its earnings power.

Magic Formula Ranking

Normalized Earnings Analysis

FY2025 EBIT of CHF 377M was impacted by significant foreign exchange headwinds and temporary tariff costs. Adjusted for one-time FX losses and normalizing tax rate, sustainable operating income could be closer to CHF 500M–550M. The company's guidance for 2026 implies continued strong growth (23% cc sales growth, gross margin ≥64.5%), so trailing earnings understate true earning power. Greenblatt would likely use a normalized two-year average EBIT, which would raise the earnings yield modestly but still fall short of deep value territory.

Why The Market Is Wrong

The market is not necessarily wrong about ONON; it correctly prices the growth. The stock has fallen ~38% from highs on growth deceleration fears and leadership changes, but its premium valuation still assumes robust multi-year expansion. A contrarian could argue that near-term concerns about DTC miss and temporary tariff impacts are overblown, and that normalized earnings are higher, making the stock a bargain on forward basis. However, Magic Formula disciples would wait for a lower price, perhaps in the low $30s, where earnings yield would exceed 6%.

Key Risks

Conclusion

On Holding is a wonderful business with a narrow moat and stellar return on capital, but its stock price currently embeds too much optimism. At $36.83, the earnings yield is below 5%, failing the 'cheap' criterion. Greenblatt would advise patience, waiting for a lower price to establish a position. The company's high quality merits monitoring, and a decline into the low $30s would trigger a buy under Magic Formula discipline.

Overview

A Peter Lynch-style fundamental analysis of On Holding AG (ONON), the Swiss premium sportswear brand known for its CloudTec® running shoes. We apply Lynch's framework—understanding the business, stock categorization, PEG ratio, insider activity, balance sheet health, and 'tenbagger' potential—using recent financial data (as of May 2026) and public disclosures.

The Two-Minute Story

On Holding is a Swiss company that makes high‑end running shoes, apparel, and accessories. Think of it as a premium Nike challenger at a much earlier stage. Its shoes have a unique, recognizable sole and are loved by runners and lifestyle consumers alike. The business is simple: sell footwear and now apparel at full price through its own stores, website, and select wholesale partners. Revenue just crossed CHF 3 billion, growing over 30% a year, and gross margins are an industry‑leading 62‑64%. Only 30% of people globally even know the brand, so there’s a long runway. The stock has fallen from $61 to $36 because Wall Street worries about slowing growth and a leadership change, but the business itself is stronger than ever. You’re buying a high‑growth, premium brand at a forward P/E of 16.8 while it’s still expanding in Asia, apparel, and direct‑to‑consumer channels. If they execute, earnings could grow 25‑30% per year, making the current price a bargain.

Stock Category

Do You Understand This Business?

Absolutely. On Holding designs, markets, and sells premium athletic footwear and apparel. An ordinary person can see the shoes in stores, notice friends wearing them, or even own a pair. The 'edge' comes from observing consumer behavior: whether people are switching to On from incumbents, whether stores are crowded, and whether the brand maintains its premium pricing power. The company’s innovation—the CloudTec® cushioning and the new LightSpray™ manufacturing—is understandable: it’s about making lighter, better‑performing shoes. This is the kind of 'invest in what you know' business Lynch loves.

PEG Ratio Analysis

Lynch's Checklist

Tenbagger Potential

Could this stock 10x from $36.83 to ~$370 (market cap >$120 billion)? That is a very high bar. To achieve that, On would need to become the dominant global sportswear brand, surpassing Nike and Adidas combined in market cap. While the brand has exceptional momentum, a 10x return is unlikely from today’s $12 billion base. However, a 3‑5x over the next decade is plausible if On executes on its premium growth strategy and global expansion. This is more of a compounder than a classic tenbagger at this stage, akin to buying a young Nike—still a great investment, but not a multibagger in a few years.

Key Risks

Conclusion

Peter Lynch would appreciate this setup: a premium, global brand with a repeatable, easy‑to‑understand business, a balance sheet stuffed with cash, and a forward P/E of 16.8 while earnings are poised to grow 25%+ for several years. The stock has fallen out of favor—down 40% from its high—creating a potential ‘diamond in the rough.’ The PEG ratio is a Lynch favorite and it screams value here. Lynch would also be reassured that the co‑founders are back at the helm, signaling a founder‑led, long‑term focus. The risks are real, but the margin of safety from the low PEG and strong balance sheet tilts the odds in the investor’s favor. I would buy a starter position now and add aggressively if the stock dips into the low $30s. This is not a story stock; it’s a growing company with pricing power, and at this price, it’s worth owning.

Overview

A CAN SLIM analysis of On Holding AG (ONON), a Swiss premium sportswear company, applying William J. O'Neil's methodology to recent financial and market data alongside topical news to determine if the stock meets the criteria for a growth-oriented investment.

Financial and Business Overview

On Holding is a leading global sportswear brand founded in 2010, known for its innovative CloudTec® cushioning and LightSpray™ manufacturing technology. The company sells footwear, apparel, and accessories through direct-to-consumer channels (DTC) and wholesale partnerships in over 80 countries. In Q1 2026, net sales reached CHF 831.9 million, a 26.4% increase in constant currency, with record gross margin of 64.2%. FY2025 net sales surpassed CHF 3 billion for the first time, growing 35.6% constant currency. Profitability metrics are strong: adjusted EBITDA margin expanded to 21% in Q1 2026, and the company holds over CHF 1 billion in cash. The recent CFO appointment and founders returning as Co-CEOs signal leadership continuity. The business model relies on premium pricing, product innovation, global distribution, and a balanced DTC/wholesale mix. Despite robust fundamentals, the stock has been under pressure due to FX headwinds, tariff uncertainties, and a guided deceleration in revenue growth.

Market Position & Competitive Advantages

On Holding has carved a distinct niche as a premium sportswear brand with a narrow economic moat (Morningstar rating). Its competitive advantages include proprietary technologies (CloudTec, LightSpray), strong brand desirability among affluent consumers, and a high-growth category expansion into apparel and accessories. The company is gaining market share in running, tennis, and lifestyle segments, particularly in Asia-Pacific (61% cc growth in Q1 2026). On's gross margins above 60% are among the highest in the industry, reflecting pricing power. However, competition from established giants like Nike, Adidas, and HOKA is intense, and the premium positioning carries execution risk if consumers trade down. Risks include foreign exchange volatility, import tariffs (20% on Vietnam-sourced goods), and the need to sustain innovation momentum.

Stock Performance

As of May 15, 2026, ONON trades at $36.83, down 38.5% from its 52-week high of $61.29. The stock is below both its 50-day ($36.22) and 200-day ($42.51) moving averages, indicating a clear downtrend. The recent price action shows a modest bounce from the 52-week low of $31.41, but it remains well below the declining 200-day line. Volume patterns show a 10-day average of 8.9 million shares versus a 3-month average of 6.9 million, suggesting increased trading activity—potentially distribution—following the Q1 2026 earnings release on May 12. The negative year-to-date return and underperformance relative to the broad market reflect sustained selling pressure.

CAN SLIM Analysis

Key Risks

Conclusion

ONON excels in the C and A criteria with robust earnings growth and high profitability, and the N criterion is supported by groundbreaking innovations. However, the stock fails the S, L, and M criteria: it is in a downtrend with supply dominating, shows weak relative strength, and operates in a challenging macro environment. O'Neil principles dictate buying leaders at new highs, not laggards in corrections. While the company's fundamentals suggest a premium franchise, the current technical setup demands patience. A hold rating is appropriate for existing investors; new positions should wait for a proper base breakout and improved market conditions.

Overview

A Druckenmiller-style macro analysis of On Holding AG (ONON) at a critical inflection point, where premium brand momentum, secular wellness trends, and self-reinforcing market narratives collide with geopolitical uncertainty, FX headwinds, and a sharp valuation reset.

Macro Context

The global economy is navigating a late-cycle phase with elevated geopolitical friction (Iran conflict, Red Sea disruptions) and ongoing policy uncertainty from U.S. trade tariffs, particularly the 20% levy on Vietnamese imports. Central banks remain data-dependent, with no clear easing catalyst. The U.S. dollar has weakened, amplifying Swiss franc strength and creating a material translation drag for Swiss exporters. Consumer discretionary spending is bifurcated: the affluent 'movement class' continues to treat premium sportswear as an identity investment, while lower-income cohorts pull back. Secular trends—longevity, wellness, athleisure, and direct-to-consumer digital engagement—continue to reshape the sportswear industry, rewarding brands that combine technological innovation with cultural relevance.

Company Position in Macro Landscape

ONON is perfectly positioned to benefit from the secular premiumization of sportswear. Its core customer is the affluent, aspirational consumer who remains resilient to gas prices and broader inflation. The company's 'health is the new wealth' narrative aligns directly with a post-pandemic societal shift. However, ONON is a victim of the strong Swiss franc, which depresses reported revenue and net income, creating a gap between constant-currency operational strength and IFRS results. Tariff assumptions are conservatively baked into guidance, providing latent upside if resolved. ONON's premium pricing power and 64%+ gross margins make it relatively insulated from cost pressures compared to mass-market peers like Nike.

Reflexivity Analysis

A powerful negative feedback loop has driven the stock down 38% from its 52-week high. The initial catalyst was FY2026 guidance of 'at least 23%' constant-currency growth, which fell short of consensus and triggered a 14% single-day drop. This was compounded by a CEO transition and FX-driven net income declines, eroding investor confidence. The sell-off breeds further skepticism: analyst downgrades, negative headlines, and a chart that looks broken. However, this is precisely where a positive reflexivity loop could ignite. The underlying business continues to deliver 26% cc growth, record margins, and expanding brand awareness. If ONON sustains its premium execution and reiterates or beats guidance, the negative sentiment could reverse violently, forcing shorts to cover and fundamentally-driven investors to re-engage. The stock's heavy hedge fund ownership (51 funds) suggests a crowded unwind has already occurred, reducing positioning risk. The upcoming Investor Day (expected early 2027) could reshape the long-term narrative and trigger repricing.

Competitive Position & Disruptive Threats

ONON holds a narrow economic moat rooted in a premium brand intangible asset, supported by proprietary technologies (CloudTec® and LightSpray™), disciplined full-price execution, and a growing DTC channel (41.8% of sales). Market share gains are evident across all regions, notably in APAC (+85% cc in Q4 2025), where Nike is struggling. Apparel (57% cc growth) and accessories (87% cc) are becoming meaningful growth vectors, with apparel already exceeding 10% of DTC sales. The expansion into tennis, training, and lifestyle collaborations (Loewe, Zendaya) deepens cultural relevance. Competitive threats include potential saturation in core running, imitation by larger incumbents, and emerging direct competitors like HOKA. However, ONON's vertically integrated innovation engine (Zurich foam lab, LightSpray automated manufacturing) provides near-term product advantages that are difficult to replicate quickly.

Asymmetric Risk/Reward

At $36.83, the risk/reward is highly asymmetric to the upside. Forward P/E of 16.8x is near trough for a company growing constant-currency revenue >20% with gross margins above 64% and an expanding EBITDA profile. Morningstar fair value is $47.50, and consensus estimates range up to $58+. If ONON delivers on raised 2026 guidance (gross margin ≥64.5%, EBITDA 19.5-20%), the stock could re-rate to 22-25x forward earnings, yielding a base case target of $48-$55 within 12 months (30-50% upside). Downside is protected by a cash-rich balance sheet (CHF 1 billion, about $1.1B) and a tangible brand value that would attract strategic interest if growth stalls. Hidden optionality includes LightSpray's manufacturing revolution—reducing labor dependency and enabling near-shoring—and eventual tariff resolution, which would provide incremental EPS upside. The steep decline has created a convex payoff: limited downside from here given the fundamental strength, but explosive upside if the sentiment loop flips.

Key Risks

Investment Details

Overview

This report applies Warren Buffett’s investment framework to On Holding AG (ONON). It assesses the company’s business simplicity, competitive moat, management quality, financial strength, and intrinsic value to determine whether the stock offers a margin of safety for a long-term, buy-and-hold investment.

Business Understanding

On Holding is a Swiss performance sportswear company that designs and sells premium running shoes, apparel, and accessories. Its flagship CloudTec® cushioning technology and innovative LightSpray™ manufacturing are easy to grasp. The business model—selling desirable, full-price products through direct-to-consumer and wholesale channels—is straightforward and falls within the circle of competence of any investor familiar with consumer brands.

Economic Moat Analysis

On possesses a narrow but real economic moat rooted in a premium brand intangible asset. The brand commands strong pricing power, with gross margins above 62% and rarely discounted products. Its proprietary technologies (CloudTec, LightSpray) and deep cultural connections (collaborations with Loewe, Zendaya, Roger Federer) create differentiation. However, switching costs are low, and competition from Nike, Adidas, and HOKA is intense. The moat is growing wider as awareness spreads (from 20% to 30% global awareness in one year), but remains narrower than that of an entrenched industry leader.

Management Quality

Founders Caspar Coppetti and David Allemann have recently returned as co-CEOs, ensuring a founder-led, long-term vision. The company has quadrupled sales since its IPO while maintaining premium positioning and expanding margins. Capital allocation is disciplined: the balance sheet holds over CHF 1 billion in cash with negligible debt, and profits are reinvested into innovation, brand building, and retail expansion. The company pays no dividend or buybacks, which is appropriate for a high-return growth stage. Transparency is high, and insider ownership is meaningful. The recent departure of CEO/CFO Martin Hoffmann introduces some leadership transition risk, but he will remain as an advisor.

Financial Strength

Financial metrics are exceptional. Gross margin reached a record 64.2% in Q1 2026, and adjusted EBITDA margin hit 21.0%. Trailing ROE is approximately 14%, but forward estimates imply a sharp rise as net income scales. The company ended 2025 with over CHF 1 billion in cash and zero net debt. Free cash flow generation is robust: 2025 operating cash flow of CHF 359.5 million less capex of CHF 78.6 million yields CHF 280.9 million of owner earnings. The balance sheet provides resilience and optionality for growth, and the premium pricing model insulates profitability even in promotional environments.

Intrinsic Value Assessment

Using owner earnings (net income + depreciation – maintenance capex), 2025 adjusted net income was CHF 266.4 million (about $320 million USD assuming 0.83 CHF/USD). Depreciation and amortization was CHF 127.4 million, capex CHF 78.6 million. Owner earnings approximate CHF 315 million ($380 million USD). With a forward growth rate of 23% constant-currency sales and expanding margins, owner earnings could grow 25%+ annually for several years. Applying a 20x multiple to 2026 estimated owner earnings of ~$475 million yields an equity value near $9.5 billion; at 25x, ~$11.9 billion. The current market cap of $12.3 billion and forward P/E of 16.8 suggest the stock is trading at a modest discount to a conservative intrinsic value. Morningstar’s fair value estimate is $47.50 per share, implying a 29% upside from the current $36.83. A margin of safety of about 15-25% exists if long-term assumptions hold.

Key Risks

Investment Details