Nike (NYSE:NKE) shares recently fell to new lows in about 12 years amid rising competition and falling sales. Despite the plunge, the stock’s forward P/E still sits at 23.38, a 46% premium to the sector median of 15.99. There is another, smaller competitor that is gaining attention.
On Holding (NYSE:ONON) insiders are piling into the stock. The stock is down about 33% so far this year. The athletic footwear and apparel company’s CEO Caspar Coppetti and co-founder Olivier Bernhard each purchased 65,000 shares on August 14.
The buying came just a few days after the company missed Q2 revenue estimates and cut full-year sales guidance.
What Happened
On Holdings’ revenue in Q2 grew 22% at constant currency, a deceleration of about 480 basis points from the quarter prior. Wholesale grew just 12.7%. Management said the wholesale slowdown was largely deliberate and concentrated in the Americas, where the company held back shipments to retailers to avoid discounting rather than protect volume.
Photo by Adam Nowakowski on Unsplash
The Bull Case
Profitability improved even as growth slowed. Gross margin rose to 65.4%, up 390 basis points year over year. Adjusted EBITDA margin expanded 160 basis points to 19.8%. Regionally, EMEA grew 20.5% at constant currency and Asia-Pacific grew 54.7%.
Bulls highlight that the slowdown in wholesale was by choice and should not be overblown. On the latest earnings call, ONON management said it chose not to build up inventory at retail partners that could hurt full-price positioning. The company plans to launch a new shoe this fall and the idea is to keep shelves clean now so those launches sell at full price instead of getting lost next to marked-down inventory.
On is still growing revenue at a double-digit pace while Nike (NKE) sales have gone negative.
On valuation, the stock’s forward earnings multiple has fallen roughly 70% below its own five-year average, and its PEG ratio, which adjusts price for growth, sits well below the sector median.
Management said on the call that tariff refunds expected later this year aren’t baked into current numbers, meaning the outlook may already be conservative. September’s Investor Day, the company’s first in three years, is the date bulls are watching for management to lay out a longer growth story.
While we acknowledge the risk and potential of ONON as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than ONON and that has 10,000% upside potential, check out our report about the cheapest AI stock.
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