DTC Channel Expansion And Global Reach Will Secure Future Success

Key Takeaways

• Direct-to-consumer, e-commerce focus and automated manufacturing are driving higher profitability, operational control, and scalability for On Holding.
  
• Diversified products, international growth, and broader demographic appeal are strengthening brand equity and fueling sustained global revenue gains.
  
• Reliance on premium pricing, marketing-heavy expansion, and limited brand collaborations risks margin pressure and sales slowdown if consumer demand or market trends shift.

Catalysts

Engages in the development and distribution of sports products worldwide.

• The acceleration in DTC (Direct-to-Consumer) and e-commerce channels, with DTC reaching new highs (41.1% of sales in Q2 and up 54% YoY), gives On more control over brand, pricing, and customer data while increasing gross and EBITDA margins-an operational catalyst likely to further expand profitability as DTC continues its mix shift.
  
• Rapid international expansion, especially triple-digit growth in Asia-Pacific and strong double-digit gains in EMEA, shows On successfully capturing a larger share of the global market; continued urbanization and the blurring of sport/fashion globally set the stage for ongoing robust revenue growth.
  
• The company's ability to launch and quickly scale new product franchises (nine now >5% of revenue), expand beyond running into tennis, trail, lifestyle, and fast-growing apparel, demonstrates successful product innovation and diversification, supporting both average selling price increases and higher future revenue per customer.
  
• Investment in innovative, automated manufacturing processes such as LightSpray is expected to materially improve supply chain efficiency, reduce production costs, and support localized supply, which, over time, should enhance gross margins and bolster scalability as demand grows.
  
• Broadening demographic appeal-particularly strong among Gen Z and diverse sports/lifestyle communities-with resonant marketing and influencer collaborations increases overall brand equity, supporting sustained long-term demand and giving leverage for premium pricing, which drives higher revenues and preserves margins.

On Holding Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming On Holding's revenue will grow by 22.9% annually over the next 3 years.
• Analysts assume that profit margins will increase from 5.0% today to 11.1% in 3 years time.
• Analysts expect earnings to reach CHF 561.2 million (and earnings per share of CHF 1.83) by about September 2028, up from CHF 135.9 million today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 39.9x on those 2028 earnings, down from 86.6x today. This future PE is greater than the current PE for the US Luxury industry at 20.5x.
• Analysts expect the number of shares outstanding to grow by 1.03% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.96%, as per the Simply Wall St company report.

On Holding Future Earnings Per Share Growth

Risks

• Heavy reliance on premium pricing and frequent price increases to offset tariffs and cost pressures may not be sustainable in the long term, as rising prices could alienate core consumers or invite greater competitive pressure, potentially impacting future revenue growth and net margins.
  
• Accelerated expansion in multiple regions and categories requires ongoing high levels of investment in marketing, retail, and innovation (e.g., LightSpray, new stores, technology), which may compress net margins if these investments fail to achieve targeted operational leverage or if consumer demand slows in key markets.
  
• Despite current strong demand, global macroeconomic or foreign exchange volatility-such as continued weakness of the U.S. dollar relative to the Swiss franc, or potential disruptions from tariffs and trade tensions-could negatively impact profitability and reported earnings due to translation losses and cost inflation.
  
• Ongoing dependence on a limited set of high-profile collaborations, celebrity endorsements, and retail "hype moments" (e.g., LOEWE, Zendaya) to drive apparel and lifestyle growth could be vulnerable to shifting consumer trends and could lose effectiveness over time, risking reduced sales momentum and lower revenues if brand buzz fades or tastes shift.
  
• Rapid triple-digit growth in regions like APAC and aggressive store expansion heighten the risk of market saturation, inventory mismanagement, and operational control challenges; if consumer tastes shift or regional growth slows, this could lead to inventory buildups and revenue deceleration, which would pressure both gross margins and net earnings.

Valuation

• The analysts have a consensus price target of CHF65.858 for On Holding based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of CHF79.18, and the most bearish reporting a price target of just CHF39.82.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be CHF5.0 billion, earnings will come to CHF561.2 million, and it would be trading on a PE ratio of 39.9x, assuming you use a discount rate of 8.0%.
• Given the current share price of CHF44.8, the analyst price target of CHF65.86 is 32.0% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.