On Holding is Friday's IBD Stock Of The Day after UBS analyst Jay Sole doubled down on the Swiss athletic footwear and apparel maker. Sole reiterated his buy rating and 42 price target for ONON stock.
In Friday stock market action, ONON stock donned a pair of Cloudsurfer running shoes known for their springier takeoffs. Then it vaulted above its 50-day moving average, offering an early entry in an emerging consolidation. But shares pulled back as the broader market faded.
ONON Analyst Opinion
Sole had nudged up his ONON stock price target to 42 from 39 on May 17. His price target hike came even as shares sold off after the Q1 earnings report on May 16. At the time, Sole noted his view that On Holding can lead the industry in sales growth and deliver annual EPS growth of 44% over the next five years.
In standing by that price target in Friday's note, Sole highlighted the brand's underappreciated potential to address a much larger market beyond running shoes.
Inventory Issue
However, selling pressure in ONON stock after the Q1 earnings report came as some analysts expressed concern about inventory levels.
In a May 17 video interview linked to this page above, On Holding co-CEO Martin Hoffman explained to IBD's Alexis Garcia that the company "started to order products earlier" to meet demand when shipping times were excessively long last year. "Now that everything has normalized, which is a very positive thing, we have seen too much inflow of product too early."
However, he expressed confidence in the outlook for inventories to become appropriately lean by year's end. "The important thing is this is all the right product. It's product that we can sell."
CloudTec Update
Additionally, this spring On Holding introduced a new version of its midsole CloudTec technology. The first shoe to feature it is the latest Cloudsurfer, designed for 4-hour marathon runners.
A review in Sustain Health explained that the CloudTec midsole "features newly shaped elements made from Helion super foam that collapse like dominoes." They interlock to provide a revolutionary rolling motion and stride transition, the report said.
The reviewer added, "This design ensures a level stride throughout the foot's roll and proper energy return, making the Cloudsurfer one of the most comfortable and supportive running shoes on the market."
On's focus on technology and sustainability has built a brand that has gained acceptance in the everyday footwear and apparel markets.
Meanwhile, in the video interview with IBD Hoffman also touted progress in building out an apparel line starting in 2016. Apparel now accounts for 12%-17% of sales at On's own retail stores. The first opened in New York City in 2020.
ONON Stock
ONON stock climbed 5.4% to 30.24 on Friday. Shares got as high as 31.45, above its 50-day moving average, but closed just below that key level. The move came on double normal volume, a bullish sign. ONON stock also broke the trendline from its 34.88 52-week high on May 5.
Shares flashed a buy signal intraday, but investors should look for a move above the 50-day line or Friday's high for an entry now.
The emerging consolidation followed a big run from late March to early May.
