Investors should consider On Holding AG (ONON) as a high-conviction growth play, as it currently trades near IPO levels despite tripling its revenue over the last five years. With industry-leading 65% gross margins and a 30% year-over-year growth rate, the company is significantly outperforming legacy competitors like Nike (NKE). The stock presents a valuation opportunity for long-term investors to acquire a "lean machine" before the market corrects for its 28% projected growth over the next 12 months. Monitor the Investor Day in September as a primary catalyst for price appreciation, where the company is expected to showcase new robotic manufacturing and retail expansion plans. For those seeking exposure to the footwear sector, rotating out of NKE and into ONON offers superior margins and a much stronger expansion runway in the Direct-to-Consumer space.

On Holding AG (ONON)

• On Holding (often referred to as "On Running") is a premium Swiss sportswear brand that is positioning itself to become a global leader in high-end athletic gear. • The company is currently achieving 65% gross margins, which exceeds their long-term guidance of 60%, signaling strong pricing power and brand prestige. • Growth Performance: - Revenue has tripled over the last five years, maintaining a consistent 30% year-over-year growth rate. - Regional growth is particularly strong in Asia, where sales are increasing at approximately 50%. - Analysts project 28% growth over the next 12 months. • Innovation & Technology: - The brand is known for its "Cloud" technology and recently introduced "LightSpray," a robotic manufacturing process that creates custom shoes. - The company is successfully expanding beyond running shoes into apparel and lifestyle categories, targeting Gen Z and professional athletes alike. • Management & Structure: - The company is returning to a founder-led model following the planned departure of a CEO who served for five years. - Unlike many growth companies, there is no significant share dilution; the company has actually slightly reduced its share count recently. • Market Sentiment: - The stock is currently "flat" or "dumping" despite strong fundamentals. The speaker attributes this to general market fears of a recession and a temporary distaste for high-growth stocks. - Marketing expenses (13% of sales) were questioned by some analysts, but the speaker views this as a lean and efficient spend for a brand building global recognition.

Takeaways

• Valuation Opportunity: The stock is trading near its IPO levels despite the business being significantly larger and more profitable than when it went public. • Efficiency Advantage: With a Rule of 40 score of 48, the company is balancing high growth with profitability more effectively than most peers. • Expansion Runway: On is currently under-distributed; they aim to triple their retail store presence and are seeing massive success in their Direct-to-Consumer (DTC) online channel. • Upcoming Catalyst: An Investor Day in September may serve as a catalyst for the stock as the company reveals its next wave of innovation.

Nike (NKE)

• Used as a primary comparison point to highlight the relative strength of ONON. • Financial Comparison: - Growth: Nike is projected to see a 3% decline in sales over the next 12 months, whereas On is growing at 30%. - Margins: Nike’s gross margin is 41% (vs. On's 65%) and its EBITDA margin is only 8%. • Brand Perception: The speaker suggests Nike has lost its "cool factor" to newer brands like On. • Structural Issues: Nike is described as an "old machine" that is less lean and heavily reliant on "old-world" retail partnerships, making it less agile in the Direct-to-Consumer space.

Takeaways

• Sector Rotation: For investors seeking exposure to the apparel and footwear sector, the speaker suggests ONON offers a much more attractive growth profile and valuation than the industry leader, NKE. • Relative Value: While Nike trades at 1.5x revenue, On trades at roughly 2x revenue. The speaker argues this small premium for On is unjustified given that On is growing significantly faster and has much higher margins.

Investment Themes & Sectors

Premium Sportswear & "Athleisure"

• There is a clear shift in the market where "innovative" and "cool" brands are taking market share from legacy giants. • Success in this sector is currently driven by technological differentiation (e.g., robotic manufacturing, specialized cushioning) and high-margin Direct-to-Consumer sales.

Growth vs. Value Disconnect

• The transcript highlights a recurring theme in the current market: "Hyper-growth" stocks (like ONON, HIMS, or SOFI) are being punished by the market despite consistent revenue growth and improving fundamentals. • This creates a potential opportunity for long-term investors to pick up "lean machines" at prices that do not reflect their historical or projected growth.

Risk Factors Mentioned

• Recession Fears: The market tends to sell off premium consumer brands when a recession is feared, as high-end shoes ($150+) are considered discretionary spending. • Executive Transition: The market often reacts negatively to CEO departures, even when they are telegraphed and the company returns to founder leadership.