Okta: Buy Rating Based on Long-Term Growth Tailwind and Near-Term Catalysts
Investment Overview
Okta (NASDAQ: OKTA) provides Identity Access Management (IAM) solutions to businesses and consumers. The company has a strong position in the industry and is expected to benefit from the long-term growth trend in digitalization, which is increasing the need for cybersecurity solutions.
Recent Security Incident is a Past Event
A security incident in October 2022 raised concerns about Okta’s reputation and future growth. However, the company’s recent performance and forward-looking comments indicate that this is now a past event. Okta did not see a material impact from the incident, and its revenue and earnings beat estimates in its fourth-quarter 2024 results.
Long-Term Growth Opportunity in Cybersecurity
The cybersecurity industry is expected to continue to grow at a rapid pace as businesses and organizations adopt more cloud-based solutions and face increasing cyber threats. Okta’s IAM solutions are essential for protecting these digital assets and identities.
New Product and Sales Strategy to Drive Growth
Okta has two key growth catalysts in the near term: its Spera solution and a new sales strategy. Spera is a cloud-based solution that helps businesses prevent identity theft and fraud. The company’s new sales strategy focuses on targeting SMBs and separating customer upsells from new customer acquisitions.
Valuation and Risk
Based on Okta’s growth and margin profile, a target price of $112 is estimated, which implies a 6x forward revenue multiple. The biggest risk to Okta’s growth is if the recent security incident stems from a structural problem that could lead to another similar event.
Conclusion
Okta’s leading position in the IAM market, strong revenue growth prospects, and new growth catalysts support a buy rating. The recent security incident appears to be a past event, and the company’s long-term growth tailwind remains intact.
