Should You Hold Okta (OKTA)? - InvestingChannel

Should You Hold Okta (OKTA)?

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Financial Pros’ Top Corporate Security Stock Searches in the Last Month

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Should You Hold Okta (OKTA)?

Last week, hackers breached SnowFlake’s (SNOW) cloud servers, stealing consumer data from LendingTree.

Nearly 165 companies were affected by the hack, with data being sold to cybercriminals.

According to a May survey by the Wall Street Journal, 90% of companies said cybersecurity risks increased last year.

Companies are expected to spend $186 billion in 2024 to protect their data, increasing by 8% annually over the next five years.

Okta (OKTA) has staked a claim as an identity and access management leader.

Their security ID products compete directly with Microsoft (MSFT) whom they often compare themselves to.


Source: OKTA Q1, 2025 Investor Relations

Yet, the company faced its own data breaches in 2022 and 2023.

Shares are down 70% from their all-time highs and 4.3% this year.

However, after reviewing our TrackStar financial pro search data and seeing what the heavy hitters were reading, we feel there might be an opportunity here.

Okta’s Business

Based in San Francisco, Okta carved a niche in identity solutions. The company’s comprehensive identity platform integrates with various applications, providing top-notch security and convenience.

Globally, Okta serves over 19,100 customers, with offerings that include the Workforce Identity Cloud and Customer Identity Cloud, which provide secure access and collaboration for employees, contractors, and partners. 

With a 111% dollar-based net retention rate, its customer loyalty and growth are impressive.

Okta segments its business into:

  • Subscription Revenue (97%) – The main revenue stream from services like Workforce and Customer Identity Clouds.
  • Professional Services and Other (3%) – Covers consulting, training, and implementation services.

Recently, Okta reported $617 million in total revenues, a 19% year-over-year jump. Subscription revenues hit $603 million, up 20%. 

The non-GAAP gross margin climbed to 81.5%, showcasing improved efficiency. Additionally, the free cash flow margin soared to 34.6%, highlighting Okta’s robust financial health.

Recently, the company has focused on integrating AI into its platform, allowing for real-time detection and response through unusual pattern and anomaly recognition and proactive defense measures.



Source: Stock Analysis

Okta has experienced phenomenal revenue growth in the past decade. 

So, why isn’t it profitable?

Mainly stock-based compensation, at least in the past few years.

Remove that, and you get the free cash flow numbers, which have grown nicely.

Forward outlooks suggest slower revenue growth in 2024, around 10%- 11% for the full year. This is in line with other security companies like Palo Alto Networks, which are seeing longer lead times and sales cycles, which may eventually pressure margins.



Source: Seeking Alpha

With the heavy stock compensation, we need to look at Okta’s non-GAAP P/E ratio to understand its value better.

At 42.6x, it sits somewhere in the middle of its peers, much like its 24.2x price-to-cash ratio. The forward price-to-cash ratio of 26.1x suggests a combination of slower growth and margin compression will impact the company this year.



Source: Seeking Alpha

Okta has been the beneficiary of substantial revenue growth over the past several years.

However, its forward sales outlook dips below 20% for the first time in years, similar to the slower growth projections from peers like MongoDB (MDB).

We don’t expect this will last longer than a year as data security remains a huge threat to companies.



Source: Seeking Alpha

Okta’s gross margins fall in line with its peers. And like some of its peers, it faces negative net income margins while generating positive cash flow.

We see the 34.4% free cash flow margin as a healthy sign for the company, though we expect it to contract this year.


Our Opinion 10/10

Given the outlook for cyber security and Okta’s valuation, we see substantial upside potential for the company over the next 6-12 months.

At 24.2x cash flow, it’s relatively cheap given its expected growth, which we believe is conservative.

In a sea of frothiness, we like Okta at these prices.

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