What's Wrong With On Holding Stock?

On Holding (ONON -0.64%) has been experiencing a decline in its stock price this year, with a notable drop of about 23%. This downturn appears to be the result of a deliberate slowdown implemented by the company. In August, shares plummeted after sales for the second quarter fell short of Wall Street's expectations. The largest one-day drop in On's history was triggered by a slowdown in wholesale sales, which tested investors' patience.

However, this intentional slowdown is actually a strategic move by On to promote full-price sales and make space for new products in the upcoming year.

Despite this temporary setback, On's financial fundamentals remain robust. Its direct-to-consumer sales have grown by 34.3% in the latest quarterly report, while the gross margin has expanded to 65.4% compared to the previous year. Net sales in apparel have increased by 56.2%. Management anticipates constant-currency sales to grow in the low-20% range in 2026, a modest revision from previous guidance but still a promising outlook as the company ventures into new sports like football and golf.

The company aims to achieve $7 billion in sales with this expansion, a challenging yet attainable objective.

Additionally, On has authorized a $1 billion share buyback, indicating confidence in its own future. Currently, the stock is trading at approximately 21 times trailing earnings, and it boasts a price-to-earnings growth ratio of just 0.49, suggesting that the stock is fairly valued and may be trading below the consensus price target of $43.55 set by analysts.

While the company may experience a slight slowdown in growth, its strong financial footing suggests that On Holding is well-positioned for long-term success. Investors are advised to remain patient as the company navigates through this temporary slowdown and moves forward into 2027.