On’s Cloudmonster franchise is gaining appeal in the running shoe market.
Since bottoming out in 2022, On Holding (ONON 1.62%) stock has climbed 84%, and the popularity of On’s Cloudmonster running shoes had a lot to do with those returns.
As of this writing, the stock is sitting around $31 after hitting a 52-week high of $37.08 last year. But TD Cowen analyst John Kernan believes the company’s momentum will send the stock back to those previous highs soon enough. The firm recently slightly raised its price target from $36 to $38 and maintained a buy rating on the shares. Here’s why the stock could be on the verge of breaking out to new highs.
What’s so great about On Holding?
On delivered revenue growth of 31% on a constant-currency basis in the fourth quarter. The company is scheduled to release first-quarter 2024 results on Tuesday, May 14. For the full year, management is guiding for year-over-year revenue growth of at least 30%.
TD Cowen’s internal checks on customer acquisition and retention are pointing to more growth for the company. The firm particularly sees an attractive opportunity for the brand in the Asia-Pacific region. Indeed, Asia has been a great market for Lululemon Athletica in recent years, and On should find similar success.
Consistent with its international growth runway, On is planning to open an additional 100 brand stores to build awareness for the brand. It’s clearly got a hot product to sell in its Cloudmonster franchise, which management said drove strong sales during the holiday season in Q4 2023.
Is the stock a buy?
The company should continue to grow revenues and profits at high rates. This is reflected in the stock’s high forward price-to-earnings ratio of 40. It’s not unreasonable to expect the stock to hit new highs this year, but the company will need to deliver on investors’ high expectations for growth.
John Ballard has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Lululemon Athletica. The Motley Fool recommends On Holding. The Motley Fool has a disclosure policy.