Is Okta Stock's 4.55X P/S Still Worth it? Buy, Sell or Hold?

Okta OKTA shares are trading at a stretched valuation, as suggested by the Value Score of F.  In terms of the forward 12-month Price/Sales (P/S), OKTA is trading at 4.55X, a premium compared with the Zacks Internet Software Services industry’s 2.68X. However, Okta is significantly undervalued in comparison to its closest peers, including Microsoft MSFT, Palo Alto Networks PANW and CrowdStrike CRWD. Microsoft, Palo Alto and CrowdStrike shares are trading at P/S of 10.56X, 13.21X and 17.99X, respectively.OKTA shares have 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.Price/Sales Ratio (F12M) Image Source: Zacks Investment Research 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. So, what should investors do with OKTA shares at the current valuation? Let’s analyze.OKTA’s Fiscal 2025 View StrongOkta’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 13.2%. 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 60 days, suggesting 63.13% over fiscal 2024.The free cash flow margin is now expected to be roughly 23% for fiscal 2025.Earnings Estimate Trend Remains SteadyFor the to-be-reported third-quarter fiscal 2025, the Zacks Consensus Estimate for Okta’s earnings has been steady at 57 cents over the past 60 days. The earnings figure suggests 29.55% growth year over year.Okta’s earnings beat the Zacks Consensus Estimate in all of the trailing four quarters, the average surprise being 27.15%. Okta, Inc. Price and Consensus Okta, Inc. price-consensus-chart | Okta, Inc. Quote Find the latest EPS estimates and surprises on Zacks Earnings Calendar.The consensus mark for revenues is pegged at $649.42 million, indicating 11.2% growth over the figure reported in the year-ago quarter.Can Strong Portfolio Help Okta Shares Recover in 2H25?Okta shares have declined 18.7% year to date (YTD), underperforming the broader Zacks Computer & Technology sector’s return of 25.6% and the industry’s drop of 4.8%.OKTA Lags Sector, Industry YTD Image Source: Zacks Investment Research However, OKTA’s innovative portfolio is expected to help win clients, driving top-line growth. 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. OKTA exited the second 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.In September, Okta expanded the capabilities of Auth0 and the Okta Customer Identity Cloud to give developers more scalability, security and customization. Okta has increased the capability of its Auth0 Free Plan to include 25,000 monthly active users (MAUs) as well as a passwordless feature, unlimited social & Okta connections, and custom domain support. Paid plans now include enterprise-grade identity security with multi-factor authentication, support for System for Cross-domain Identity Management, enhanced log retention, and more.Okta’s strong portfolio is helping it win market share in the cybersecurity domain against Microsoft, IBM and CyberArk.Okta Benefits From Strong Demand for Identity SolutionsThe plethora of security breaches worldwide has signified the growing importance of cybersecurity service providers like OKTA. IDC expects the global security market to witness double-digit growth over the next five years, with revenues hitting $200 billion in 2028. Identity and Access Management (IAM), which Okta specializes in offering, 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 enterprises’ ongoing digital transformation. These factors bode well for Okta’s long-term prospects. In October, Okta announced new Workforce Identity Cloud capabilities that solve issues related to unmanaged SaaS service accounts, governance risks and identity verification. The Secure SaaS Service Accounts feature within Okta Privileged Access is a set of upcoming capabilities to protect non-federated SaaS accounts with vaulting, credential rotation, step-up MFA before secret reveal, and audit trail.Governance Analyzer, an upcoming feature of Okta Identity Governance, will help managers and approvers by providing the insights they need, including usage data and previous governance decisions, to make informed authorization decisions quickly and confidently.ConclusionOkta is a risky bet in the near term, given its modest growth prospect and a stretched valuation. However, investors who already own the stock may expect the company's growth prospects to be rewarding, given its strong portfolio and partner base over the long term.Okta currently has a Zacks Rank #3 (Hold), suggesting that it may be wise to wait for a more favorable entry point to accumulate the stock. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.Only $1 to See All Zacks' Buys and SellsWe're not kidding.Several years ago, we shocked our members by offering them 30-day access to all our picks for the total sum of only $1. No obligation to spend another cent.Thousands have taken advantage of this opportunity. Thousands did not - they thought there must be a catch. Yes, we do have a reason. We want you to get acquainted with our portfolio services like Surprise Trader, Stocks Under $10, Technology Innovators,and more, that closed 228 positions with double- and triple-digit gains in 2023 alone.See Stocks Now >>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 ReportTo read this article on Zacks.com click here.Zacks Investment ResearchWeiter zum vollständigen Artikel bei Zacks Weiter zum vollständigen Artikel bei Zacks