Investors are always looking for the next big thing, but investing before a company has a proven track record can come with a lot of risk. On occasion, you can find a stock with huge opportunities that's still in its early growth stages but has already demonstrated enough success for investors to be confident about where it's going.
That's what's happening with On Holding (ONON -2.10%). The Swiss company exploded onto the activewear scene with its distinctive CloudTec sneakers, and it looks like it could be an incredible growth stock to add to your portfolio. Here are three reasons why.
1. It keeps pumping out higher sales
On has been unstoppable, demonstrating outstanding growth despite the pressure in the economy. It's outdoing its peers, including leading athleticwear giant Nike, Adidas, and similar premium activewear company Lululemon Athletica.
LULU Revenue (TTM) data by YCharts
On has developed an almost fanatical following for its comfy running shoes that it developed for athletes. Its sneakers, which feature a unique, air-filled sole, stand out with their design, and their high-tech functioning is making believers out of customers.
Management had previously laid out a strategy with the goal of 25% annual growth through 2026. It exceeded that with 47% in 2023, and it expects to exceed it again with 30% growth in 2024.
2. People still don't know about it
As impressive as that may be, investing is all about future potential. What makes On compelling is that it still has very low brand awareness globally while it's demonstrating all the signs of resonating with its target market where it's known.
For example, it has a brand penetration of only 9% in the U.S. It's still barely penetrated some of the most affluent cities in the country, such as New York, where it has a 7% brand awareness, and Dallas, where it's 12%. When it does get its name out there, it has been able to develop incredibly strong relationships with shoppers. It's also the kind of premium brand that attracts a mass following and gets sales from all socioeconomic segments, including mass consumers who are willing to spend to enjoy On's footwear.
On has inked celebrity endorsement deals with global athletes such as marathon runner Hellen Obiri and Ironman champion Gustav Iden. It's based in Switzerland, and Swiss tennis great Roger Federer was an early investor.
3. It's already profitable
One of the big risks with stocks of this nature is that early-stage companies are usually still investing in growth and piling on expenses. But On's affluent clientele leads to resilience in tough times, like when there's high inflation, and its premium pricing leads to wide margins.
It has an industry-leading gross margin, outpacing similarly priced Lululemon.
LULU Gross Profit Margin (Quarterly) data by YCharts
Although it's still bouncing between profits and losses quarterly, it reported an annual profit -- based on generally accepted accounting principles (GAAP) -- in 2023. That's likely to continue, and On should become sustainably profitable this year.
As that happens and On keeps up its high growth, its stock should skyrocket. It could be one of the best growth stocks to own right now.
