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Down 10% From Highs, Is This Tech Stock a Buy On the Dip?

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Founded in 2009, cybersecurity company Okta (OKTA) offers identity and access management (IAM) solutions. Its platform enables organizations to manage and secure user authentication across multiple applications, devices, and networks. 

Okta offers cloud-based solutions that help organizations secure user authentication processes. Okta has experienced rapid growth in recent years, reflecting rising demand for cybersecurity solutions. Between 2019 and 2024, Okta’s revenue grew from $399.2 million to $2.26 billion. While profitability was a concern, the company achieved that recently, in the fourth quarter of fiscal year 2024. 

The company reported another record quarter, sending its stock price up 13.7% year to date, compared to the S&P 500 Index’s ($SPX) 11.2% gain. The stock is now down about 10% from its 52-week highs.

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Okta Reported a Fantastic Quarter

Okta’s cloud-based model is scalable and flexible, appealing to customers ranging from small businesses to large enterprises. 

Analysts and investors were even more impressed with its most recent quarterly results. For the fiscal year 2024, Okta reported revenue of $2.26 billion, representing a 22% year-over-year increase. This growth is primarily driven by the company’s subscription-based revenue model, which has shown strong retention and expansion among its existing customer base. 

Okta is sitting on a hefty cash balance (cash, cash equivalents, and short-term investments) of $2.2 billion. Plus, the company generated free cash flow (FCF) of $489 million in fiscal 2024.

More Growth Ahead

Talking about fiscal 2025, CEO Todd McKinnon stated, “Organizations continue to turn to Okta to help modernize and simplify their identity infrastructure. As we start the new fiscal year, we’re excited to deliver powerful new features and products, with security as the foundation, to better serve our customers and power even more identity use cases.”

Okta is scheduled to report its first-quarter fiscal 2025 results on May 29, after the market closes. Management anticipates revenue growth of 16% to 17% year on year to $603 million to $605 million, which is consistent with consensus estimates. 

Additionally, cRPO (current remaining performance obligation) could increase by 13% in Q1. The company defines cRPO as a “subscription backlog expected to be recognized over the next 12 months.” Adjusted net income per share could land between $0.54 and $0.55, compared to $0.22 in the year-ago quarter. 

Okta stated in Q4 that its cRPO had increased by 16%. This is most likely why management expects revenue growth of 10% to 11% for the full fiscal year 2025. Adjusted net income could range from $2.24 to $2.29. In fiscal 2025, the company expects to generate 21% of its sales as FCF. 

Likewise, analysts expect Okta to achieve sustainable profitability in the next two fiscal years, with an adjusted profit of $2.26 in fiscal 2025 and earnings increasing 14.9% to $2.60 per share in fiscal 2026.

Furthermore, revenue is expected to grow by 10.8% in fiscal 2025 and 13.1% in fiscal 2026. Okta is still an attractive buy at six times forward sales, as opposed to peer Palo Alto Networks (PANW), which is trading at 12 times forward sales.

What Does Wall Street Say About Okta Stock?

Following another strong quarter, Mizuho Securities raised its target price for Okta stock to $110 from $105. Furthermore, Wedbush analyst Imtiaz Koujalgi reiterated his “buy” rating and set a price target of $130.

Overall, Wall Street analysts rate Okta stock a “moderate buy.” Out of the 37 analysts covering the stock, 13 rate it a “strong buy,” two rate it a “moderate buy,” and 22 recommend a “hold.”

The average analyst target price for OKTA is $108.15, which implies an upside potential of 5% above current levels. Furthermore, the Street-high price of $140 implies an upside of about 36% over the next 12 months. 


The Key Takeaway

Organizations across industries are embracing digital transformation, resulting in increased use of cloud-based services. As cyber threats become more sophisticated, the need for advanced IAM solutions will likely grow. Okta’s offerings are well-suited to capitalizing on this trend. However, there is stiff competition in this space. Investors willing to navigate the volatility and focus on long-term growth may find Okta to be a valuable addition to their portfolio right now.

On the date of publication, Sushree Mohanty did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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