What's Next For OKTA Stock?
CANADA - 2025/01/31: In this photo illustration, the Okta, Inc. logo is seen displayed on a ... More smartphone screen. (Photo Illustration by Thomas Fuller/SOPA Images/LightRocket via Getty Images)
Okta (NASDAQ:OKTA), a leading cloud-based identity and access management provider, experienced a significant stock decline of 13% in after-hours trading on Tuesday, May 27, following the release of its fiscal 2026 first-quarter financial results (fiscal ends in January). The company's performance exceeded the Wall Street expectations in both earnings and revenue but it was the guidance that didn't sit well with the investors.
For the quarter, Okta reported earnings of $0.86 per share on revenue of $688 million, surpassing analyst predictions of $0.77 per share and $680 million in sales. As of May 27, OKTA stock was up nearly 60% year-to-date, significantly outperforming the broader NASDAQ index, down 0.4%. The company's continued growth in subscription services has kept investors optimistic. Now investors seeking consistent returns might consider exploring diversified investment options like the Trefis High-Quality portfolio, which has demonstrated impressive performance, generating over 91% returns since its inception.
In the first quarter, Okta demonstrated robust financial performance with its revenue reaching $688 million, representing a 12% year-over-year increase, primarily fueled by growing subscription services. The company's forward-looking indicator, Remaining Performance Obligations (RPO), showcased strong potential by expanding 21% year-over-year to $4.1 billion.
Beyond top-line growth, Okta also made significant strides in operational efficiency. The company's adjusted operating margin improved substantially, widening by 500 basis points to 27% in Q1. This combination of revenue expansion and margin enhancement translated into a 32% increase in earnings per share, which reached $0.86 for the quarter.
For fiscal 2026, Okta anticipates earnings of $3.23 to $3.28 per share on roughly $2.85 billion in sales. The company has now taken into account the potential risks related to the uncertain economic environment in its outlook.
Okta's stock, currently trading at approximately $110 per share (after market hours), is valued at about 8 times its trailing revenues. This is a slight increase from its three-year average price-to-sales (P/S) ratio of around 7x. While the recent pullback in stock might worry investors, several fundamental factors suggest that further appreciation is likely. In fact, we think that the recent 13% pullback in the stock post its Q1 announcement appears overdone. The company's robust performance indicators—including a strong revenue backlog, improving profitability, and double-digit subscription revenue growth—justify a potential upward revision of its valuation multiple.
After the recent decline, the current valuation seems to offer the potential for additional growth. Okta's underlying business fundamentals continue to demonstrate resilience and strategic momentum in the competitive cloud-based identity management market. Surely, there are risks to consider. OKTA stock has a history of weak downturn resilience, having fallen 84% during the 2022 inflation shock market downturn, which was significantly worse than the S&P 500's peak-to-trough decline of 25.4% in the same period. In fact, there always remains a meaningful risk when investing in a single, or just a handful of stocks. Consider Trefis High Quality (HQ) Portfolio which, with a collection of 30 stocks, has a track record of comfortably outperforming the S&P 500 over the last 4-year period. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index; less of a roller-coaster ride as evident in HQ Portfolio performance metrics.
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