What Is A Better Investment: Nike Or On Holding AG?

Nike generated approximately two-thirds of its revenue from footwear in 2021, but can this hot-shot, Swiss-born IPO challenge its dominance?

Oct. 22, 2021

The footwear market is fragmented but has several prominent players, with Nike (NYSE: NKE) top of this list. However, can On Holding AG (NYSE: ONON) eat into its market share, and is it a better buy?

On Holding AG Bull vs Bear arguments:

On Holding AG (NYSE: ONON), also known as On or On Running, is founder-led and backed by tennis star Roger Federer with a goal to revolutionize running with its shoes. 

On’s founding is based on innovation and a basic concept of a cushioned landing and explosive take-off. Its prototype for its CloudTec technology won awards in 2010, and On has released several new technologies since.

The company has a ‘Performance All Day’ range, built for comfort and design, and includes “The Roger Franchise” developed with Federer. It also has a loyal customer base, with three-quarters of people saying they would recommend the brand to a friend and a net promoter score of 66. 

The company’s revenue growth has been impressive, with an 85% compound annual growth rate since inception. It reported an 84% increase in sales through the first six months reaching $343.2 and a net income of $4.1 million. It is also investing in its direct-to-consumer channel, with a flagship store in New York and four others in China. 

The company is operating in a highly competitive space, and it will have to continue to innovate to gain market share. The company is also trading at a rich valuation of roughly 13.5x price to sales which is more than double what Nike is trading at. 

Nike: Bull vs Bear arguments:

Nike designs and manufactures footwear, apparel, and sporting goods. The Nike brand has stood the test of time, and that is in no small part to the wide range of famous athletes, including Lebron James, Serena Williams, and many more. 

In its most recent quarter, Nike reported revenue growth of 12% year-over-year (YoY) on a currency-neutral basis reaching $12.2 billion with gross margins of 46.2% in Q1 of fiscal 2022. Its digital sales have been critical as it pivoted during the pandemic, and the momentum continued in Q3, with digital sales increasing by 25% YoY. The re-opening of physical stores has also helped to drive growth. 

Nike is one of the largest footwear manufacturers globally and owns some of the most iconic brands, like the Air Jordan shoe line. Beyond footwear, the company has been capitalizing on athleisure trends, which have accelerated due to COVID-19. Notably, Nike has several areas that can fuel growth in the future. 

One risk to Nike is supply chain issues, particularly in Vietnam, where 50% of Nike branded footwear is manufactured. The company has also revised guidance for the year from low double-digit growth to single-digit growth, which is a cause for concern. 

So, which stock is a better buy right now?

Although On shows promise, it is a recent IPO and has seen its stock price surge. On the other hand, Nike is a global brand that should continue to perform regardless of short-term headwinds and is a better buy today.

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