Why On Holding (ONON) Underperformed the Broader Market and What This Means for Investors
The recent underperformance of On Holding AGONON-- (ONON) relative to the broader market raises critical questions about valuation misalignment and the sustainability of its business model. While the S&P 500 has traded at a trailing price-to-earnings (P/E) ratio of 29.035 as of September 2025[1], ONON's P/E ratio has ballooned to 96.0, a stark disconnect that reflects both investor optimism and underlying vulnerabilities[2]. This analysis unpacks the factors driving this divergence and what they imply for investors.
Valuation Misalignment: A Tale of Two Growth Stories
ONON's revenue growth has been nothing short of explosive. For the twelve months ending June 30, 2025, the company reported $3.14 billion in revenue, a 39.81% year-over-year increase[3]. By comparison, the S&P 500's projected revenue growth for 2025 is a modest 5.5%[4]. Such outperformance has justified a premium valuation in theory. However, the company's trailing P/E ratio of 96.0—up from 64.51 in August 2025[2]—suggests that investors are paying for future growth at a pace that may not materialize.
The price-to-book (P/B) ratio further underscores this misalignment. ONON's P/B of 8.51 indicates investors are willing to pay a significant premium for its equity relative to its net asset value[2]. In contrast, the S&P 500's P/B ratio, while elevated, remains far lower, reflecting a more conservative valuation of tangible assets. This disparity highlights a key risk: if ONON's earnings fail to grow at the rate implied by its multiples, the stock could face a sharp correction.
Profitability and Operational Risks: A Fragile Foundation
Despite its revenue surge, ONON's profitability metrics tell a more nuanced story. The company's net profit margin of 4.74% for the trailing twelve months[2] lags behind its 2023 margin of 5.00%[5], even as revenue nearly doubled. This decline, coupled with a return on equity (ROE) of 10.34%[2], suggests that scaling has come at the cost of margin compression. By comparison, the Apparel, Footwear & Accessories industry's average net margin in Q2 2025 was 1.88%[6], meaning ONON's profitability, while better than peers, is not robust enough to justify its valuation.
Operational risks further cloud the outlook. A recent warehouse transition in Atlanta disrupted direct-to-consumer (DTC) operations, leading to stockouts and wholesale cancellations[7]. These hiccups, while temporary, expose the fragility of ONON's supply chain—a critical vulnerability for a company reliant on premium product availability. Additionally, its business model is heavily concentrated in the U.S. market and performance running shoes, which account for 72% of revenue[7]. This lack of diversification leaves the company exposed to regional economic shifts and competitive pressures from giants like Nike and Lululemon.
The Beta Conundrum: Volatility as a Double-Edged Sword
ONON's beta of 2.23[2]—far exceeding the market average of 1.0—means its stock is exceptionally volatile. While this volatility can amplify gains in a rising market, it also magnifies losses during downturns. The 13.15% decline in its 52-week price[2] underscores this risk, particularly for investors who bought into the stock during its 2023-2024 euphoria. In contrast, the S&P 500's lower volatility offers a more stable backdrop for earnings-driven growth, even if its returns are less spectacular.
What This Means for Investors
For long-term investors, ONON's underperformance highlights the dangers of overvaluing growth at the expense of profitability and operational resilience. While the company's 5-year EPS growth forecast of 34.83%[2] is enticing, achieving this will require navigating significant headwinds, including supply chain bottlenecks, margin pressures, and intense competition. The stock's current valuation implies a high degree of confidence in these outcomes, which may not be warranted.
In contrast, the S&P 500's lower valuation multiples and more diversified earnings base offer a safer haven in a market increasingly wary of speculative bets. For investors seeking exposure to the premium athletic footwear sector, ONONONON-- could still present opportunities—but only if its operational execution improves and its valuation aligns with fundamentals.
Conclusion
ONON's underperformance against the broader market is a cautionary tale of valuation misalignment and business model fragility. While its revenue growth is impressive, the company's profitability, operational risks, and high volatility create a mismatch with its sky-high multiples. Investors must weigh these factors carefully, recognizing that even the most dynamic growth stories can falter without sustainable execution.
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