Investing in High-Flying Footwear Stocks This Year

Spotlight on Dynamic Footwear Stocks

This year has been remarkable for footwear manufacturers, with On Holding (NYSE: ONON) and Crocs (NASDAQ: CROX) leading the charge with impressive stock returns exceeding 50%. These two companies have captured investor interest, and here's a closer look as to why they are worthy additions to your portfolio.

On Holding Overview

On Holding is a Swiss athletic footwear company renowned for its Cloud series of performance running shoes. Originally focusing solely on running, the brand has diversified its offerings to include tennis, training, casual wear, and outdoor shoes, capturing a wider audience.

Growth Trajectory and Opportunities

On Holding has showcased robust growth, particularly evident in its 28% revenue increase for the second quarter, propelled by the popularity of its Cloud running shoes. The brand's foray into tennis shoes, highlighted by its collaboration with tennis star Roger Federer, has been met with enthusiasm. Moreover, their Cloudtilt all-day performance shoes are reportedly flying off the shelves, solidifying the company’s foothold in multiple footwear niches.

Brand Expansion Potential

While On Holding's performance has been impressive, its global brand recognition remains relatively modest, indicating vast growth opportunities ahead. The company aims to boost brand awareness through the opening of new stores, promoting direct-to-consumer sales, and enhancing its community presence. Additionally, the company has witnessed a remarkable growth rate in apparel, with Q2 sales increasing by 63%, yet it still accounts for less than 4% of total sales. As On Holding continues to strengthen its brand presence, apparel could become a significant revenue contributor.

Distribution and Manufacturing Innovations

In transitioning to a new warehouse in Atlanta, On Holding has faced some distribution challenges, but this move is anticipated to enhance U.S. distribution scalability. With improved distribution efficiency, the company expects to unleash even more robust sales. Innovations like the introduction of lightspray technology, which automates shoe upper production, highlight On Holding’s commitment to elevating its manufacturing efficiency.

Crocs: Resilience and Growth Factors

After experiencing a challenging 2023, Crocs has seen a strong rebound in stock performance in 2024. The iconic Crocs brand continues to thrive, while the acquired HeyDudes brand is working through recovery challenges.

Diverse Product Offerings

Crocs is actively expanding its product lineup beyond its well-known clogs. With successful ventures into the sandals market and experimentation with sneaker-like designs, Crocs demonstrates its responsive approach to market trends. This diversification strategy fosters broader customer appeal and brand loyalty.

International Expansion and Growth Strategies

Crocs is also eyeing international markets, particularly in China and India. Sales in China observed a remarkable 70% increase in the second quarter, indicating significant potential. India, an emerging market, presents further growth opportunities. To revitalize the HeyDudes line, which has faced challenges, Crocs has onboarded actress Sydney Sweeney as a global spokesperson, signaling a commitment to rejuvenating the brand’s presence and appeal.

Investment Outlook for On Holding and Crocs

With On Holding trading at a forward price-to-earnings (P/E) ratio of approximately 38.5 based on next year's analyst estimates, its PEG ratio of 0.8 suggests that the stock may indeed be undervalued. Furthermore, Crocs, with a forward P/E around 10, offers an attractive investment opportunity, especially considering its core brand's expected revenue growth of 7% to 9% this year, despite challenges with HeyDudes. These compelling factors cement the case for investors looking at these footwear leaders.

Frequently Asked Questions

Why should I consider investing in On Holding?

On Holding has shown significant growth in revenue, particularly with its innovative Cloud running shoes and growing apparel line. Its brand awareness is growing, marking a solid opportunity for investor returns.

What growth potential does Crocs have?

Crocs is expanding internationally and diversifying its product offerings, including the successful introduction of sandals and sneakers, which enhances its market appeal.

How does the P/E ratio influence investment decisions?

A lower P/E ratio can indicate that a stock is undervalued compared to its earnings potential, making it a more attractive buy for investors looking for growth opportunities.

What challenges are On Holding and Crocs facing?

While On Holding manages distribution transitions, Crocs is revitalizing its HeyDudes brand after previous inventory and marketing issues.

Are these stocks suitable for long-term investments?

Both stocks exhibit strong growth potential and innovative strategies, suggesting that they may be suitable options for long-term investors seeking growth in the footwear industry.

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