Okta (OKTA), which provides identity management solutions to the federal government and companies, recently reported very strong quarterly results. Moreover, the company should be largely insulated from Washington’s budget cuts, while Japanese bank Mizuho upgraded the stock to Outperform from Neutral on March 4.
Also importantly, the valuation of OKTA stock is attractive, given the company’s strong growth and positive outlook.
In light of all of these points, I view the stock as a buy for growth investors looking for increased exposure to the rapidly growing, resilient cybersecurity sector.
Impressive Financial Results and Well-Positioned Amid DC’s Cost Cutting
Last quarter, Okta’s revenue climbed 12.7% versus the same period a year earlier to $682 million, while its net income, excluding certain items, came in at $141 million, far above the adjusted net income of $113 million that it generated during Q4 of the previous year. Meanwhile, the firm’s backlog soared 25% year-over-year to $4.2 billion.
Further, in Q4, the company added 25 customers that are expected to contribute at least $1 million annually in revenue to Okta.
Also noteworthy is that analysts on average expect the company’s earnings per share to climb to $3.18 this year from $2.81 in 2024.
Meanwhile, identity management falls in the cybersecurity category, and Defense Secretary Pete Hegseth has put “priority critical cybersecurity” on a list of categories whose funding could actually be boosted going forward. What’s more, President Donald Trump did not rescind three of President Joe Biden’s executive orders that instruct the federal government to take steps to boost its cybersecurity capabilities.
And companies are prioritizing cybersecurity because hacking attacks can cost them a great deal of money.
As a consequence of these points, it appears that OKTA and its cybersecurity peers will be largely shielded from budget cuts.
Mizuho Became Bullish on OKTA
As I pointed out earlier, Japanese bank Mizuho on March 4 raised its rating on OKTA to Outperform from Neutral on March 4. The bank believes that the company delivered strong growth numbers last quarter, and it noted that the firm now expects its revenue to jump 9%-10% this year, up from its previous guidance for a 7% increase. Additionally, Mizuho reports that Okta is very well-positioned in the identity management space, while it is poised to benefit from a number of its newer products and its valuation is attractive.
Mizuho increased its price target on the shares to $127 from $110.
Investment bank Stifel also issued a bullish note on OKTA in the wake of its results. Stifel expects the company to benefit from entities’ “continued prioritization of identity security,” its new products which have gained “early traction,” and its enhanced marketing efforts. The investment bank raised its price target on the shares to $120 from $115 and kept a Buy rating on the stock.
An Attractive Valuation
I agree with Mizuho’s characterization of Okta’s valuation as attractive. That’s because the shares are changing hands at a forward price-to-earnings ratio, excluding certain items, of 35 times Given the company’s rapid revenue increases and its ability to benefit from the high prioritization of cybersecurity by companies and governments, that’s a relatively cheap valuation.
*This article is intended to be informational only; it is not financial advice.
