Ever since On Holding (ONON -3.23%) went public through an initial public offering (IPO) in late 2021, investors have wondered if the athletic footwear company could become the next Nike. Well, recently, it’s turned out much better for investors.

While Nike stock has dropped by more than 20% so far in 2024, On Holding shares have soared by 65%. That’s because the company’s sales continue to skyrocket. Net sales increased over 55% on a constant currency basis in 2023, and the company expects at least 30% sales growth on that basis for 2024. Investors bid up the stock as those sales are also flowing to the bottom line with earnings per share and the company’s cash balance soaring in the first half of 2024.

Tapping a growing U.S. market

Though On Holding is a Swiss company based in Europe, two-thirds of On’s sales comes from North and South America. Sales in that region continue to increase at a rapid rate, and there’s good reason for investors to think the runway for those sales can continue to accelerate.

Sales of athletic footwear in the U.S. are expected to grow steadily over the next several years. And importantly for shareholders, On is retaining more of those sales as bottom-line profit, too.

The company has been steadily reporting increases in EBITDA (earnings before interest, taxes, depreciation, and amortization) margin. That profitability measure has grown along with net income margin as On has been lowering operating expenses. Specifically, EBITDA margin rose from 13.5% in 2022, to 15.5% in 2023, and the company expects at least 16% in 2024. In addition to lower freight costs, On has made its direct-to-consumer (DTC) sales a larger portion of the business, helping profitability.

A market beyond shoes

On has also been broadening its product offerings beyond running shoes and even beyond footwear. That’s a smart move for the fast-growing company. Apparel sales helped to lead sales growth, with a 63% increase in the second quarter. And that, too, is an expanding market. Global activewear sales have been strong all decade and are expected to jump by another 33% through 2028.

A look at valuation

But those growing addressable markets have been what has attracted some investors already. After the stock has surged another 15% in just the past two weeks, it is trading at a relatively high valuation.

Shares are valued at a price-to-sales (P/S) ratio of above 5 based on the company’s 2024 sales estimate — the highest level in the last year. And while its price-to-earnings (P/E) ratio has long been high, representing the company’s strong growth, it is also well above the past year’s average at about 44. But with sales continuing to grow quickly and more falling to the bottom line as profit, On Holding is still a compelling growth stock.

It’s not too late to buy On Holding stock, but investors may want to build a position gradually. With the stock on the higher end of its historical valuation, by buying in thirds one can take advantage of any dips that inevitably will come.