Cloud security company Okta (NASDAQ:OKTA) had a tremendous couple of years. Since trading at just $22.60 in early 2017, it quickly became a crowd favorite, soaring as high as $141.85. Since then, OKTA has crashed 34% off those highs. However, the plunge in OKTA stock has created a long-term buying opportunity.
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A part of this opportunity comes from the fact that the company has disrupted the cloud-based security market, using a unique identity-based approach to security.
For example, its Identity Platform assists companies of all sizes with tracking how their employees access and use cloud-based applications from anywhere in the world. While that may not seem important, consider this: Up to 81% of all data breaches have been caused by weak and even reused passwords, according to Verizon’s (NYSE:VZ) 2017 Data Breach Investigations Report.
That can put an entire organization at risk, and that’s where Okta comes into play.
Okta Stock Is a Game-Changer
With its cybersecurity tools, Okta tapped into a sweet spot of a market expected to grow 13% per year to $23.4 billion by 2025, according to Zion Market Research.
“The rising momentum of web-based applications and remote working has led the users to stay connected with organizational resources without putting security at risk. Moreover, organizations are hosting applications on the cloud, making it extremely important to manage their authentication and authorization for various applications and organizational data, thereby driving the identity and access management market,” Zion notes.
Thanks to Okta’s unique approach to protecting cloud security, it will benefit from that significantly. Its Identity Cloud Platform, for example allows people to securely access a network through a multi-factor authentication and sign-in security process. That alone can stop unauthorized visits. Then, once a user has been verified, they can access apps they’ve been granted access to, including cloud-based applications.
The company also launched SecurityInsights, which provides companies with personalized security detection and solution capability. This allows users to report suspicious activity, helping companies take quick action against potential cyberattacks.
Okta also partnered with software company Atlassian (NASDAQ:TEAM). Companies can now integrate Okta’s authentication technology into Atlassian cloud products, giving users secure access in a safer online environment.
Okta Fundamentals Are Improving
Granted, OKTA stock did drop 34% from September. However, the pullback is temporary.
For one, the company remains in net loss territory. As Demitrios Kalogeropoulos pointed out in his OKTA earnings breakdown for the Motley Fool, this net loss comes even after the company increased its cash burn to 1% of revenue from 6% of revenue year-over-year.
With that, and a new private offering of $1 billion worth of convertible debt notes, nervous investors sent the stock lower.
However, I’m not greatly concerned by that, and see further upside in the stock, especially with earnings. In fact, in recent months, “[t]he company reported sales of $141 million, representing 49% growth year over year.”
As Kalogeropoulos notes, that was also well above company predictions for $131 million in sales. Meanwhile, subscription revenue jumped 51% to $132.5 million. Okta also added about 450 customers, growing its total customer base to more than 7,000, which includes some of the world’s largest companies.
Going forward, Okta raised its outlook for the second straight quarter, “targeting fiscal-year sales of between $560 million and $563 million.” That’s up from expectations of “between $543 million and $548 million” from May 2019. It’s also up from the $530 million to $535 million forecast set at the start of the year. The only issue is a stable profit. “Non-GAAP net losses are on track to land at between $0.44 and $0.42 per share this year, compared with $0.32 per share last year,” Kalogeropoulos writes.
The Bottom Line on Okta Inc Stock
While I’m not happy seeing losses push higher, I’m confident in the company’s longer-term outlook with explosive earnings and forecasts. Given its exposure to a growing cybersecurity market, and big demand from global businesses, I’m also not concerned about its growth.
Long-term, OKTA stock is a winner that hit a temporary rough patch. I don’t believe it’s anything to be concerned with. Instead, we should focus on the long-term growth story here. With sizable growth prospects, it’s tough to argue for further downside.
With patience, I expect Okta Inc stock to resume its powerful uptrend, especially since cybersecurity issues show no signs of cooling.
As of this writing, Ian Cooper did not hold a position in any of the aforementioned securities.
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