Why On Holding (ONON) Underperformed the Broader Market and What This Means for Investors

The recent underperformance of On Holding AG (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 2025S&P 500 PE Ratio Charts, Data - GuruFocus^[1], ONON's P/E ratio has ballooned to 96.0, a stark disconnect that reflects both investor optimism and underlying vulnerabilitiesOn Holding AG (ONON) Statistics & Valuation - Stock Analysis^[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 increaseOn Holding AG Revenue 2021-2025 | ONON - Macrotrends^[3]. By comparison, the S&P 500's projected revenue growth for 2025 is a modest 5.5%S&P 500 Index Earnings & Revenue Growth Rate Estimates^[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 2025On Holding AG (ONON) Statistics & Valuation - Stock Analysis^[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 valueOn Holding AG (ONON) Statistics & Valuation - Stock Analysis^[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 monthsOn Holding AG (ONON) Statistics & Valuation - Stock Analysis^[2] lags behind its 2023 margin of 5.00%On Holding AG Net Profit Margin 2021-2025 | ONON - Macrotrends^[5], even as revenue nearly doubled. This decline, coupled with a return on equity (ROE) of 10.34%On Holding AG (ONON) Statistics & Valuation - Stock Analysis^[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%Apparel, Footwear & Accessories Industry Profitability Ratios^[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 cancellationsOn Holding AG Navigates Challenges While Analysts Remain Optimistic^[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 revenueOn Holding AG Navigates Challenges While Analysts Remain Optimistic^[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 2.23On Holding AG (ONON) Statistics & Valuation - Stock Analysis^[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 priceOn Holding AG (ONON) Statistics & Valuation - Stock Analysis^[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%On Holding AG (ONON) Statistics & Valuation - Stock Analysis^[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, ONON 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.