ONON.US

The ceiling is large but bounded, and On is taking a bigger slice of an existing pie rather than inventing a new market. Premium performance footwear and sportswear already exists at vast scale; On is a share-gainer inside it, not the creator of a new category.

Size the addressable space first. McKinsey and the World Federation of the Sporting Goods Industry put the sporting-goods sector at roughly 7% annual growth from 2021 to 2024 and project around 6% annually through 2029, a market measured in the hundreds of billions of dollars. Against that, On's fiscal 2025 net sales were CHF 3,014.0 million, so the company sits well below 1% of global sporting-goods spend. There is plenty of room to grow into before saturation becomes the binding constraint.

The honest framing is that On competes for the same premium-adult performance buyer that Nike, Deckers' HOKA, Adidas, Salomon, and lululemon already serve. Nike alone did $46.3 billion in fiscal 2025 revenue. On is winning by being fresher and more premium where incumbents stumbled, not by opening up demand that did not exist. That is a share-shift story, which is more contestable than a blank-market story because rivals can fight back.

Where the ceiling genuinely lifts is category and geography breadth. The report frames three pillars: strengthen the running core, expand distribution with China called out, and build apparel and adjacent categories such as training and tennis. Apparel is still tiny but grew 57.5% on a constant-currency basis in Q1 2026, and APAC grew 61.4% constant-currency from a low base, with only 38 China locations at the end of 2025. If On can monetize head-to-toe sportswear and replicate Western store density across Asia, the practical ceiling moves up materially.

For a Baillie long-horizon lens, the verdict is medium-high rather than blue-sky. The pie is enormous and On's penetration is low, so the upside is real. The constraint is that this is a premiumization land-grab inside a mature, competitive industry rather than the creation of a brand-new demand pool, so the ceiling is set as much by how much share On can defend from strong incumbents as by the size of the market itself.

Yes, doubling revenue within five years is realistic, and the driver is overwhelmingly volume and mix expansion rather than headline price increases. Management's own guidance plus On's recent trajectory make a double a base-case outcome, not a stretch.

Start from the run-rate. Fiscal 2025 net sales were CHF 3,014.0 million, up 30.0% reported and 35.6% constant-currency. For 2026 the company guides to at least 23% constant-currency growth and reported net sales of at least CHF 3.51 billion. Even at a decelerating pace, compounding constant-currency growth in the low-to-mid 20s gets revenue past CHF 6 billion inside five years. To merely double from the 2025 base requires only about 15% annual growth, comfortably below the current guide.

The growth is volume-led, with three identifiable engines. Geography is the largest: APAC grew 61.4% constant-currency in Q1 2026 off a base where APAC was only 17.0% of 2025 sales and China had just 38 locations, so store rollout alone adds substantial unit volume. Category breadth is the second: apparel rose 57.5% constant-currency from a small base. Channel mix is the third: DTC was 41.8% of 2025 sales and is growing faster than wholesale, which lifts revenue per customer captured.

Price contributes, but as a supporting factor, not the engine. On's premium positioning and full-price sell-through mean it does not need promotions to hold realized prices, and the rising gross margin shows pricing power is intact. Still, the bulk of the revenue line comes from selling more units across more stores, more regions, and more categories rather than from charging existing customers materially more.

The risk to a clean double is reported-versus-constant-currency divergence and tariff drag. Q1 2026 reported growth was only 14.5% even though constant-currency was 26.4%, because On reports in CHF and FX has been a translation headwind. A persistently strong franc could keep reported revenue well below the underlying volume story, so a five-year double in reported CHF is probable but not guaranteed; in constant-currency terms it is close to a layup if execution holds.

The second curve exists today in embryonic form, and it is twofold: apparel as a category and APAC, especially China, as a geography. Neither is yet large enough to carry the group, but both are visible and growing fast enough to take the baton if running footwear matures.

The clearest candidate is apparel. In fiscal 2025 apparel was only CHF 160.9 million of sales versus CHF 2,818 million in shoes, so it is roughly 5% of the business. But it grew 45.1% reported and 57.5% constant-currency in Q1 2026, far outpacing footwear. The strategic logic is the standard premium-brand flywheel: footwear creates entry, apparel raises wallet share. If apparel reaches low-teens revenue share with healthy sell-through, it becomes a genuine second engine rather than an accessory line.

The second curve is geographic. APAC was 17.0% of 2025 sales and grew 61.4% constant-currency in Q1 2026. China matters most: On operated only 38 locations there at the end of 2025, and management explicitly calls out China store expansion as a pillar. On can support denser small-format store economics in China than in many Western markets, so this is a multi-year unit-rollout runway, not a one-year pop.

A third, smaller seed is technology productization. The report describes LightSpray moving from elite-athlete validation toward a broader commercial platform. That is early and unproven at scale, but it is the kind of proprietary-process bet that could open a distinct margin and product vector later.

The honest caveat for a long-term lens is that these are second legs of the same premium-sportswear story, not a true reinvention into a different business. Apparel and China deepen and broaden the existing model; they do not diversify On away from being a brand whose fortunes rise and fall with premium discretionary demand and product newness. The second curve reduces dependence on hero running franchises, but it does not yet change what On fundamentally is, so its quality depends entirely on apparel converting into repeat purchases rather than one-time brand-driven trial.

On's core advantage is a premium brand-and-product system paired with distribution discipline, and over the next three to five years that moat is more likely to hold or widen modestly than to narrow, though it is narrower and more conditional than the financials alone suggest.

The moat has three layers. First, brand and proprietary product: CloudTec, Speedboard, Helion superfoam, and LightSpray are real engineering claims, On held about 1,900 trademark registrations in over 100 jurisdictions at the end of 2025, and the report notes patents extending toward 2050 in some jurisdictions. Second, distribution discipline: DTC reached 41.8% of 2025 sales and On refuses to flood mass channels, which protects full-price sell-through. Third, pricing power, evidenced by gross margin rising to 64.2% in Q1 2026 while peers discount.

The widening case rests on the economics of scale done right. As DTC mix and brand awareness rise, On captures more margin and more direct customer data, and incumbent weakness gives it room. Nike's fiscal 2025 revenue fell 10% to $46.3 billion with gross margin down to 42.7%, opening space in premium running that On is filling. A challenger that keeps gaining share while holding margin is usually deepening, not eroding, its moat.

The narrowing risk is genuine and specific to the brand type. The further On pushes from pure performance into lifestyle and sneaker-informed audiences, the more it depends on taste cycles rather than durable replacement demand. The report flags lifestyle momentum around franchises like Cloudtilt Remix, which is commercially attractive but makes demand less predictable. A brand whose heat comes partly from fashion can cool faster than one whose pull is purely technical.

For a three-to-five-year view the moat is best described as medium and conditional rather than wide and secure. The product and distribution edges are durable enough to defend premium economics if execution stays sharp, and the trajectory points to gradual widening. But the moat is contested by strong premium peers like HOKA and Salomon and is exposed to fashion-cycle risk, so it is not the kind of structural fortress that lets an investor ignore execution. It widens only if On keeps proving performance credibility faster than it leans on lifestyle novelty.

On shows partial evidence of a self-reinvention gene and a reasonable, if untested-under-crisis, posture toward mistakes. It has adapted its model once before under pressure, but it has never had to rebuild after a genuine disruption of its core, so the gene is plausible rather than proven.

The strongest evidence of adaptability is the channel pivot. On entered as a wholesale-led premium brand, with DTC only 24.9% of 2019 sales, then used the pandemic disruption to permanently shift its economics, reaching 41.8% DTC in 2025. That was a structural change in how the company monetizes demand, executed deliberately, which is the kind of move a reinvention-capable organization makes. Continuous product innovation, from CloudTec through LightSpray, also signals a culture that does not sit still on a single hero technology.

On the premise of surviving disruption to the core, the picture is less reassuring. The business remains overwhelmingly footwear: shoes were 91.8% of Q1 2026 sales. If premium running demand were structurally disrupted, by a technology shift, a fashion rotation away from the brand, or a category-wide deflation, On has no proven second business large enough to absorb the blow. Apparel and APAC are growing but tiny relative to the footwear core. The self-reinvention gene therefore exists at the product and channel level but has not been demonstrated at the existential level.

How it treats mistakes and bad news is mixed but leans candid. The report credits On with a notable factual self-correction: management and disclosures make clear FY2025 net sales were CHF 3,014.0 million, not the inflated placeholder some briefs carried, and the company is transparent about embedding a 20% incremental Vietnam tariff and excluding potential refunds in guidance rather than assuming relief. Conservative guidance framing and clear segment disclosure suggest a management that does not paper over hard facts.

The open question a long-term investor should hold is governance under stress. The compressed leadership sequence in 2025-2026, Maurer out, Hoffmann in then out, founders back as co-CEOs, has not yet been tested by a real downturn. Adaptability in good times is easier than reinvention in bad times, and On's response to a genuine core disruption is unproven, so the gene is best treated as promising but not yet battle-tested.

Founder alignment is strong on the long-horizon and control dimensions, but the willingness to sacrifice current profit for the long term is only partially demonstrated, and the recent governance churn complicates the picture. On balance this dimension is a qualified positive with a real governance discount.

The long-term-vision and skin-in-the-game case is solid. On was founded in 2010 by Olivier Bernhard, David Allemann, and Caspar Coppetti, and the founders remain deeply embedded. Through a dual-class structure the founding team and affiliates still controlled 57.1% of voting power at December 31, 2025 while owning far less of the economics, and in 2026 two co-founders, Allemann and Coppetti, stepped back into the co-CEO seats. Founder control plus a stated ambition to build the most premium global sportswear brand is exactly the long-horizon orientation a patient investor wants.

The willingness to spend now for later is visible but not dramatic. On is plainly investing ahead of demand: 2025 capex of CHF 78.6 million went mainly into new retail stores, regional offices, IT, and LightSpray production equipment, and right-of-use assets and lease liabilities both climbed sharply with the DTC build-out. That is growth investment that depresses near-term free cash flow for a bigger future footprint. What tempers it is that On still runs at strong profitability while investing, with adjusted EBITDA margin of 21.0% in Q1 2026; management is not making a Bezos-style choice to crush margins for share, so the profit-sacrifice is moderate rather than aggressive.

The governance discount is the offsetting factor. The 2025-2026 sequence was unusually dense: Marc Maurer departed, Martin Hoffmann became sole CEO then stepped down effective May 1, 2026, Frank Sluis was hired as CFO, and the founders returned. Concentrated voting control combined with a compressed reshuffle of both CEO and CFO is a legitimate reason to demand valuation discipline; it can sharpen founder accountability, but it also raises execution and continuity risk just as the macro backdrop hardened.

For a Baillie-style assessment the verdict is medium. The founders' horizon and alignment are genuine strengths, and the company invests for the long term while staying profitable. But the dual-class concentration limits outside-shareholder influence, the willingness to sacrifice current profit is real but not extreme, and the leadership turnover means management credibility, while reasonable, has not yet earned a premium.

If On disappeared tomorrow, a devoted core would miss it, but the broader market would substitute fairly easily, so indispensability is moderate. On the second half of the question, On's growth model is socially and regulatorily sustainable, with tariff exposure as the main external friction rather than any practice that harms society.

On indispensability, the honest answer is that On occupies an emotional niche but not a need. Premium running shoes are a discretionary, replaceable purchase. A committed On runner values the specific CloudTec ride and the brand identity, and full-price sell-through plus rising DTC mix to 41.8% of 2025 sales show real pull and loyalty. But the competitive field is deep, with HOKA, Salomon, Nike, and others offering credible premium alternatives, so a disappearing On would leave runners disappointed rather than stranded. That places it above a fad brand but well below a true switching-cost monopoly.

The clearest evidence of pull is pricing behavior. On sustains a gross margin of 64.2% in Q1 2026 without promotional crutches, which shows customers will pay up rather than trade down. That is meaningful affection, but it is brand preference, not dependence; the further On leans on lifestyle and fashion-adjacent franchises, the more that affection is tied to staying culturally current rather than to irreplaceable utility.

On sustainability of the growth model, On scores well. Its growth comes from product innovation, premium positioning, channel mix, and geographic expansion, none of which relies on regulatory arbitrage, addictive mechanics, data exploitation, or externalizing harm. There is no obvious social-license fragility of the kind that hangs over tobacco, gambling, or certain platform businesses. Growth is earned through what customers willingly buy.

The one external sustainability risk is policy and supply concentration, not social harm. About 90% of shoes were sourced from Vietnam in 2025 and guidance embeds a 20% incremental U.S. tariff on Vietnam imports. That is a cost and resilience question that could pressure margins, but it does not make the growth model socially unsustainable. So the combined verdict is moderate indispensability plus clean, durable sustainability: customers would miss On but could replace it, and nothing about how it grows invites a regulatory or social backlash.

The unit economics are excellent and have improved with scale, which is the single strongest pillar of the On story. Gross margins are best-in-class among large sportswear peers, incremental returns are high, and the cash generated is being reinvested into growth rather than returned, which is appropriate for a company at this stage.

Gross margin is the headline. It rose from 60.6% in 2024 to 62.8% in 2025 and reached 64.2% in Q1 2026. That sits far above the broader peer set: Deckers ran 57.7% in fiscal 2026 and Nike just 42.7% in fiscal 2025. The crucial point for this question is direction: margin expanded as the company scaled, driven by full-price discipline, freight and operational efficiencies, and a richer DTC and apparel mix. Economics got better with size, not worse.

Profitability flows through to operating leverage. Adjusted EBITDA margin reached 21.0% in Q1 2026, up from 16.5% a year earlier, so incremental revenue is converting into incremental profit at a high rate. That is the signature of a business whose unit economics improve as volume builds across owned channels.

One nuance keeps this honest: reported net income is noisier than the margin trend. FY2025 net income fell to CHF 203.7 million from CHF 242.3 million in 2024 even as sales and gross margin rose, because FX swings distort the bottom line, and one 2025 quarter posted a net loss on FX effects. Owner-earnings and cash conversion are the better lens here than headline EPS, and on that basis the underlying economics are stronger than the GAAP-equivalent net-income line implies.

Where the money goes is reinvestment, and it is getting more capital-intensive. On pays no meaningful dividend and is funding growth: 2025 capex of CHF 78.6 million went mainly into retail stores, regional offices, IT, and LightSpray equipment, while the DTC build-out pushed lease liabilities to CHF 521.5 million. The balance sheet supports it, with CHF 1,019.9 million of cash and no draw on its credit facility. The one watch-item is that the DTC model is no longer capital-light: stores and leases are real commitments, so if store productivity stalls the high incremental returns could compress. For now, though, the unit economics improve with scale and the reinvestment is sensible.

A 10-year 5x is possible but demanding, and several conditions would all have to hold at once; today's price already implies durable excellence rather than a neglected bargain, which is precisely what limits the upside. From the June 2026 level around $37.85 and a market cap near $12.2-12.5 billion, a 5x means roughly a $60-62 billion equity value within a decade.

The conditions that must all hold are stackable and none individually absurd. First, revenue would need to compound at roughly 17-18% or more for ten years, lifting net sales from CHF 3,014.0 million in 2025 toward CHF 15 billion or beyond, in the range of a Nike-scale franchise. Second, gross margin would have to stay in the mid-60s, defending the 64.2% reached in Q1 2026 against tariffs, rising store costs, and apparel mix. Third, apparel and APAC would need to mature into true second engines so the brand is no longer 90%-plus footwear. Fourth, the premium valuation multiple cannot compress much, which itself requires the brand to avoid a fashion-cycle cooldown. Fifth, the management transition has to settle without execution damage.

The realism check is sobering: each condition is individually plausible, but the joint probability of all five holding for a decade is much lower than any one in isolation. The hardest is the combination of sustained 20%-plus growth with mid-60s margin at multiples of today's scale, in a competitive premium category where incumbents like HOKA and a recovering Nike fight back. That is the difference between blue-sky and base case.

What today's price implies is the crux. At roughly 3.1x trailing sales, about 2.7x guided 2026 sales, and a trailing headline P/E around the high-40s, the market is already paying for On to remain a 20%-plus constant-currency grower with mid-60s margin that absorbs tariffs and broadens beyond footwear without losing premium economics. The stock is not priced for failure; it is priced for continued near-flawless execution.

The implication for a 5x is therefore unforgiving. A large part of the next decade's success is already in the price, so the return depends on On exceeding an already-high bar, not merely meeting it. The report's own scenario work puts conservative fair value around 33-36 USD and base around 42-46 USD, with the current price between the two. A 10-year 5x can happen if On is genuinely exceptional, but the entry point offers little margin of safety to underwrite it, so the realistic probability is modest rather than high.

The market has largely noticed On already, which is the most important and most honest answer to this question. This is not a misunderstood or overlooked stock in the Baillie sense; if anything the market sees it clearly and prices it richly. The live debate is not "can't see far" versus "looks down on it" but whether the premium it already assigns is too generous.

The evidence that the market understands On is the valuation itself. The stock trades at roughly 3.1x trailing sales and a trailing headline P/E around the high-40s, a premium that explicitly rewards the growth, the 64.2% Q1 2026 gross margin, and the APAC and apparel runway. Far from ignoring the story, the market has priced in a continuation of it. So the framing of "why hasn't it noticed" mostly does not apply; the more useful question is what the market might still be underweighting at the margin.

To the extent there is any "can't see far" gap, it is the durability of constant-currency growth hidden by FX optics. Reported growth was only 14.5% in Q1 2026 while constant-currency was 26.4%, because On reports in CHF and a strong franc masks the underlying momentum. A market anchoring on the softer reported line could underestimate the real volume trajectory, and the depth of the China store runway off just 38 locations may be underappreciated. That is a modest, second-order mispricing, not a wholesale blind spot.

There is also a symmetric risk the bullish framing ignores: the market may be overestimating, not underestimating, On. The business is still 91.8% footwear in Q1 2026, heavily sourced from Vietnam under a 20% incremental tariff, and midway through a compressed leadership change. In mature consumer categories the worst stock outcomes come from very good companies whose growth merely normalizes, and a name priced for excellence has more room to disappoint than to surprise.

On the premise of what becomes the narrative inflection point, two are identifiable. The bullish inflection: two or three consecutive quarters proving mid-60s gross margin survives tariff reality, plus apparel crossing into low-teens revenue share with healthy sell-through, which would validate the "true sportswear platform" story and justify a multiple that stays structurally above athletic peers. The bearish inflection: gross margin slipping below 63% for two quarters, constant-currency growth falling into the high teens, or visible China and DTC store underperformance, any of which would reframe On from premium-growth outlier to good-company-rich-stock and trigger a rerating. The narrative turns the moment evidence forces the market to choose between "premium sportswear house" and "footwear brand with periodic apparel bursts," and right now the price is betting on the former.