After publishing its full year and Q4 2023 results, On Holding AG (NYSE: ONON) was in the news this week, down 8%. After years of strong sales growth, On's Q4 report disappointed investors, sending the stock down more than 14%. Is On worth buying given its cheaper price?
The running shoe firm was noted for its early profitability and growth. The fourth quarter lost $30.3 million, or $0.09 per share, bucking the trend. Revenues of $504.7 million were again below expectations, lowering the stock. The corporation earned $0.28 per share and had $2 billion in revenues, up 56% from $1.28 billion in 2022 in US currency.
Balanced act This week's volatility is typical of a stock with a high multiple relative to its earnings. Before Q4, the stock had a P/E Ratio of 120x earnings.
That valuation normally requires additional good news to develop upside potential, while bad news or unmet expectations will push the stock down. After beating profits and improving full-year forecasts in November 2023, the stock plummeted. This is the cost of holding a growth-oriented corporation like On Holding. The long-term potential is there, but investors must be able to handle the roller coaster.
The missing projections contradict an impressive story, and investors are likely conflicted on the share price. How often does a corporation average 60% yearly US dollar sales growth? From 68% in 2020 to 75% in 2021 and 61% in 2022—most corporations dream of these statistics.
Management said that the company's full-year 2023 results beat initial predictions, and the corporation appears to be optimistic about the future. Direct to consumer (DTC) sales are growing, which helped boost gross profit margins to above 60% in Swiss Francs in the fourth quarter.
Sales growth is still expected to be 30% in Swiss currency in 2024, even though percentage growth rates tend to drop as companies grow.
Those following the stock saw it recover after its 14% plunge Tuesday morning. Again, this shows volatility and bullish market sentiment on the company. I buy this stock on pullbacks. Long-term growth and improved direct-to-consumer business stay intact.
This company appears organized. Even though annual revenue growth underwhelmed estimates, the shift to annualized profitability shows that On Holdings management is focused on creating shareholder value early in the life cycle, unlike many growth stocks. This may be a good investment for long-term investors despite its high value.
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