Growth stocks are soaring in the bull market, but new inflation data dampened the market’s rise last week. Will inflation continue to rise? Will the Federal Reserve cut interest rates? Is a recession still a possibility?
These kinds of questions keep economists on their toes, but savvy investors zoom out and focus on the long term. Ten years from now, whether or not there is a recession in 2024 will hardly matter. The economy should continue to grow, even if not linearly, and the stock market should be well ahead of where it is today.
That’s why it’s important to find stocks that have long-term potential, and growth investors should look for high-growth stocks that could maximize their investment over 10 years and beyond.
On hold (NYSE:ONON) is up 19% since the start of the year, about double the S&P500performances. It could continue to climb this year, but it’s the long-term outlook that’s really exciting about this stock, and it could rise 10x over the next 10 years. Here’s why.
How On Holding challenges industry leaders
We manufacture high-end sports shoes and clothing. Its CloudTec running shoes and athletic shoes have developed a large following of devoted fans and are the footwear of choice for a growing group of affluent buyers.
The Swiss-based company was founded with the idea of ​​developing technologically advanced shoes that provide extreme comfort and improve athletes’ performance. These shoes have a unique sole that feels like walking on a cloud and makes them very visible.
It has numerous endorsements from high-profile athletes and sponsors tennis champions Iga Swiatek and Ben Shelton, as well as New York City Marathon winner Hellen Obiri. Swiss tennis great Roger Federer is a big fan as well as an investor in the company.
However, On is not just for athletes and its products have developed a cult following among high-end buyers who can afford its high prices. Its designs are truly different from the standard bearers of sports shoes, and we challenge the biggest names in the industry like Nike, Lululemon AthleticaAnd Adidas.
Its products are also more expensive than all, even premium brand Lululemon, and its core customers can afford to pay for them – inflation or not. This is why the company has recorded remarkable results despite a gloomy economic environment.
Sales grew 47% year-over-year in 2023, or 55% on a currency-neutral basis. This is an important distinction to point out, as currency fluctuations negatively impact its results, but it does not paint an accurate picture of operations.
Profitability also improves. It boasts industry-leading gross margins, increasing from 56% in 2022 to 59.6% in 2023, due to its high pricing and high rate of full-price sales. Net profit increased 38% year-over-year for the full year, although it posted a net loss in the fourth quarter.
How can we 10x over 10 years
It’s still in its infancy and its brand presence is growing globally. It has strong direct-to-consumer channels as well as a strong wholesale business, and it’s getting the word out.
Let’s run through the numbers and see if we can really multiply by 10 in 10 years. Management has already given guidance on achieving a 26% compound annual growth rate (CAGR) through 2026, and it is already on track to beat that target with updated forecasts of increased sales by 30% in 2024. Using 2023 figures with a 10-year CAGR of 26%, sales would reach approximately $20 billion in 10 years. Keep it price/sales ratio of 6.3 constant, this would give indicate market capitalization of $126 million, or about 10 times the current market capitalization of $10.23 billion.
Over 10 years, the annual growth rate could decelerate. But if the economy recovers, it could also accelerate, so it’s not unreasonable to maintain this CAGR. However, the price/sales ratio should fall. Using a 20% CAGR, annual sales in 10 years would be $12.4 billion, and using the same price-to-sales ratio, the market cap would be $78 billion, or about 7.5 times the current market capitalization.
When On becomes reliably profitable, the stock is more likely to track earnings rather than sales, and the price-to-earnings ratio would be a better indication of where the price might move.
While it’s possible that On stock could reach a market cap of $100 billion in 10 years, that currently seems far-fetched. But it doesn’t seem far-fetched to imagine that in 10 years it will be much bigger. If investors can focus on this and have a long-term horizon, On could be a great stock to consider right now.
Should you invest $1,000 in On Holding right now?
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Jennifer Saibil has no position in any of the stocks mentioned. The Motley Fool posts and recommends Lululemon Athletica and Nike. The Motley Fool recommends On Holding and recommends the following options: Long January 2025 $47.50 calls on Nike. The Mad Motley has a disclosure policy.
1 high-growth stock that could grow 10x in the next 10 years was originally published by The Motley Fool
