On Holding's Premium Valuation: Growth Mirage or Strategic Opportunity?

On Holding (ONON) trades at a Forward P/E of nearly 47—more than twice the Retail - Apparel and Shoes industry average of 17.41—a valuation gap that underscores a fundamental question: Is this Swiss sportswear giant's sky-high multiple justified by its growth trajectory, or is it a bubble inflated by speculative fervor? As the company prepares to report Q2 2025 earnings, investors must weigh its robust Asia-Pacific expansion and brand momentum against looming risks like currency volatility and sector-wide underperformance. The answer hinges on whether ONON can convert its premium pricing power into sustainable profit growth.

The Valuation Dilemma
ONON's Forward P/E of 46.46 (as of July 2025) places it among the most expensive stocks in its sector, even as the broader Retail - Apparel industry languishes near the bottom 21% of all industries. The disconnect stems from its extraordinary growth metrics: Q1 2025 sales surged 43% year-over-year to CHF 726.6 million, with Asia-Pacific revenue skyrocketing 130% as the brand expands its direct-to-consumer (DTC) footprint. Analysts project Q2 EPS to jump 50% to $0.24, fueled by a 33% revenue increase to $836.96 million. Yet, the PEG ratio—a measure of value relative to growth—stands at 2.27, exceeding the industry's 1.83 average. This suggests the stock's premium may outpace near-term earnings potential, particularly given margin pressures from currency swings and rising operating costs.

The Zacks Paradox
Despite the upbeat earnings momentum, On Holding carries a Zacks Rank of #3 (Hold), reflecting a cautious stance toward its valuation and macroeconomic headwinds. The model cites three key risks:
1. Sector Underperformance: The Consumer Cyclical sector is struggling amid rising interest rates and trade policy uncertainty, which could dampen discretionary spending.
2. Valuation Concerns: ONON's Forward P/E is triple the S&P 500's average, a premium that may be hard to justify in a slowing economy.
3. Margin Volatility: Currency fluctuations and supply chain costs caused net income to drop 38% in Q1, despite top-line growth.

Yet, the Zacks Consensus EPS estimate has risen 0.98% over the past month, driven by optimism around Asia-Pacific's expansion. This mixed signal—strong growth but weak margins—creates a high-risk, high-reward dynamic. Bulls argue that the stock's “Strong Buy” rating from 14 analysts reflects a long-term view of ONON's brand strength and untapped markets, while bears warn that current valuations may already reflect too much optimism.

Earnings Beat or Miss?
Q2 results will be critical to resolving this debate. While revenue and EPS are both expected to grow sharply, the key metric is net income's resilience. If currency headwinds and operational costs subdue profitability again, the stock could fall below its critical 50-day moving average of CHF 64—a level that, if breached, could trigger further declines. Conversely, a stronger-than-expected bottom-line recovery could validate the premium.

Analysts have already tempered their full-year outlook slightly, lowering 2025 revenue projections to $3.44 billion from $3.46 billion—a nod to macro risks. Yet, the 30% revenue growth forecast still outpaces peers, and the Asia-Pacific push—50+ new stores planned—remains a key growth lever.

Investment Considerations
The case for ONON hinges on two assumptions:
1. Asia-Pacific Dominance: Can ONON replicate its success in markets like China and Japan without triggering pricing wars with Nike or Lululemon?
2. Margin Stability: Will the company improve EBITDA margins beyond the 16.5% achieved in Q1, or will costs continue to erode profits?

For the risk-tolerant investor, the stock's “Hold” rating and PEG ratio argue for patience. However, the 14 “Strong Buy” analysts suggest a strategic entry point below CHF 60—well below its current price—could offer asymmetric upside. Technical traders may watch the CHF 64 level closely, as a break below it could signal a shift from speculative enthusiasm to caution.

Verdict
On Holding's premium valuation is a bet on its ability to sustain Asia-Pacific's explosive growth while navigating macroeconomic headwinds and operational challenges. While the Zacks Rank's “Hold” reflects near-term risks, the stock's speculative appeal for long-term growth investors remains intact. For now, the jury is out: bulls see a luxury brand poised to dominate emerging markets, while bears see a high-flying stock vulnerable to sector-wide downdrafts. Investors must decide whether ONON's growth story can justify its price—or if it's time to take profits and move on.

Final recommendation: Consider a speculative position in ONON only below CHF 60, with a 12–18-month price target of CHF 75–80. Above CHF 64, the risks of a pullback rise significantly.*