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Hot Off IPO, On Prompts Mixed Forecasts From Analysts

On the heels of its IPO in September, analysts are split on their recommendations regarding On, the Swiss running brand.

Backed by tennis champion Roger Federer, On sold 31.1 million shares for $24 each in its IPO, which brought the company’s value to over $6 billion, Reuters reported.

In the wake of the IPO, analysts are making recommendations on whether or not to buy shares of the company.

On Monday, Stifel Analyst Jim Duffy recommended that investors purchase shares of On, citing a “unique premium brand with open-ended growth opportunities in the $300 billion and growing global performance/lifestyle footwear and apparel market.”

“We believe brand strength and extensibility will support strong growth and justify a premium multiple for On shares for multiple years, and we view On shares as a solid core holding for growth investors,” Duffy wrote in a note.

In his investment thesis, Duffy predicting that On will exhibit strong, long term growth for “multiple years,” making it a strong asset for investors in the future. In addition to On’s position as a globally recognized brand, Duffy highlighted On’s broad distribution strategy, potential for greater profitability, and potential for continued brand momentum with more consumers.

In its filing with the SEC, On described itself as “one of the fastest-growing scaled athletic sports companies in the world,” with net sales growing at an 85% compound annual growth rate. On is currently sold in about 8,100 retail stores globally. According it the company, 36.6% of its net sales in the first six months of 2021 were generated through direct-to-consumer channels, mainly the company’s website.

In an interview with FN in September, On Co-CEO Marc Maurer said the company plans to bolster its presence in markets that are critical to longterm success, expand its brick-and-mortar presence in key cities, and make strides in sustainable innovation.

But not all analysts are as optimistic about On’s potential. In an October 4 note, Williams Trading analyst Sam Poser warned investors to “not get caught up in the initial unwarranted euphoria,” of On, recommending that people sell their shares of the company before its momentum dies down. 

“The company’s current price reflects a valuation that is excessive,” Poser wrote. “Poor distribution decisions, factory closures, other supply chain constraints in Vietnam, domestic logistics issues, and difficulties in further expanding its production base with reliable factory partners will markedly reduce the revenue growth momentum in 2022.”

With most of its products made it Vietnam, Poser specifically called out On’s “undiversified factory base” as a problem that will continue to impact the company, especially given the drawn out factory closures in the region. According to Poser, almost every single one of On’s factories have been closed for two months. Nike has experienced similar issues in the region.

On also faces a disadvantage when it comes to diversifying its footwear production outside of Vietnam, Poser said. As more established brands like Adidas, Asics, Brooks, HOKA, Nike, New Balance, Saucony, look to diversify their supply chain as well, they will likely have priority in new factory ownership over On, a less established brand.

“As we’re making progress with vaccinations, for example, we are now looking at slowly reopening and we expect factories to be able to reopen within the next one to three weeks based on the signs we’re seeing from the government and the provinces,” Co-CEO Marc Maurer told FN in September. “We basically expect to have a production interruption for six to eight weeks, and we don’t expect this to be a long-term topic.”

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