Okta OKTA shares have declined 20.2% year to date (YTD), underperforming the broader Zacks Computer & Technology sector’s return of 26.3%. It has also lagged the Zacks Internet Software and Services industry, which has declined 7.8% over the same timeframe. 

OKTA has been suffering from a challenging macroeconomic environment that has negatively impacted its business mix. Constrained budgets are hurting both the Customer Identity and Workforce Identity businesses. In second-quarter fiscal 2025, the trailing 12-month net retention rate reduced to 110%, down 5% over the year-ago period.

Nevertheless, OKTA’s portfolio strength is noteworthy, with strong demand for new products like Okta identity governance and Okta privileged access. An expanding clientele driven by the strong adoption of its Identity Threat Protection solution is a key catalyst for growth-oriented investors. 

Its Okta AI, a suite of AI-powered capabilities embedded across both Workforce Identity Cloud and Customer Identity Cloud, empowers organizations to harness AI to build better experiences and protect against cyberattacks. 

OKTA’s revenues are expected to witness a CAGR of 25% between fiscal 2022 and fiscal 2025. In fiscal 2024, the customer base increased 7.7% over fiscal 2023.

YTD Performance

Image Source: Zacks Investment Research

Okta Benefits From Strong Demand for Identity Solutions

The plethora of security breaches worldwide has signified the growing importance of cybersecurity service providers like OKTA. Per IDC’s latest data, worldwide revenues for security products totaled $106.8 billion in 2023, up 15.6% over 2022. Microsoft MSFT was the largest vendor with an 11.6% market share, followed by Palo Alto Networks PANW at 5%.

Cloud Native Application Protection Platforms, provided by CrowdStrike CRWD and Palo Alto Networks, witnessed the greatest year-over-year growth of 31.5%, followed by Identity and Access Management (IAM) at 21.4%.

IDC expects the global security market to witness double-digit growth over the next five years, with revenues hitting $200 billion in 2028. IAM is expected to be one of the fastest-growing segments, with a CAGR expected in the teens or higher between 2024 and 2028.

IAM’s growth prospect is robust due to the growing need to offer secured remote access and heightened protection around the ongoing digital transformation by enterprises. These factors bode well for Okta’s long-term prospects. 

OKTA exited the third quarter of fiscal 2025 with the total customer count increasing 5% year over year to 19,300. Customers with more than $100K in Annual Contract Value (ACV) increased 10% year over year to 4,620. 

OKTA’s fastest-growing cohort was $1 million-plus ACV customers. Okta currently has more than 40% of the Global 2000 as its customers.

Okta’s strong portfolio is helping it win market share in the cybersecurity domain against Microsoft, IBM and CyberArk.

OKTA’s Fiscal 2025 View Strong

Okta’s innovative portfolio bodes well for its prospects. 

For fiscal 2025, Okta expects revenues between $2.555 billion and $2.565 billion (up from previous guidance of $2.53-$2.54 billion), indicating 13% growth over fiscal 2024. 

The Zacks Consensus Estimate for fiscal 2025 revenues is pegged at $2.56 billion, indicating year-over-year growth of 13.19%. 

OKTA expects fiscal 2025 non-GAAP earnings between $2.58 per share and $2.63 per share (up from previous guidance of $2.35-$2.40 per share). 

The consensus mark for earnings is pegged at $2.61 per share, up a couple of cents over the past 30 days, suggesting 63.13% over fiscal 2024.
 

Find the latest EPS estimates and surprises on Zacks Earnings Calendar.

The free cash flow margin is now expected to be roughly 23% for fiscal 2025.

OKTA Stock Overvalued

However, Okta stock is not so cheap, as the Value Score of F suggests a stretched valuation at this moment.

In terms of the forward 12-month Price/Sales ratio, OKTA is trading at 4.47X, higher than the industry’s 2.68X.

Price/Sales Ratio (F12M)

Image Source: Zacks Investment Research

Conclusion

Okta’s robust portfolio is helping it to expand its clientele. It benefits from positive industry trends, including growing demand for identity solutions. 

OKTA currently sports a Zacks Rank #1 (Strong Buy) and has a Growth Style Score of B, a favorable combination that offers a strong investment opportunity, per the Zacks Proprietary methodology. You can see the complete list of today’s Zacks #1 Rank stocks here.

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

Microsoft Corporation (MSFT) : Free Stock Analysis Report

Palo Alto Networks, Inc. (PANW) : Free Stock Analysis Report

Okta, Inc. (OKTA) : Free Stock Analysis Report

CrowdStrike (CRWD) : Free Stock Analysis Report

To read this article on Zacks.com click here.

Zacks Investment Research