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Bear Of The Day: OKTA

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Okta Inc (OKTA - Free Report) beat earnings back at the start of March and the stock has moved all over the place.  The question becomes if this stock has bottomed out here in the low $240 range or is it primed for a rebound? Let’s take a deeper look in this Bear of the Day article.

Description

Okta, Inc. provides identity management platform for enterprises, small and medium-sized businesses, universities, non-profits, and government agencies in the United States and internationally.  Okta, Inc. sells its products directly to customers through sales force, as well as through channel partners. The company was formerly known as Saasure, Inc. Okta, Inc. was incorporated in 2009 and is headquartered in San Francisco, California.

Earnings History

The first thing I do when I look at stock is look to see if the company is beating the number.  This tells me right away where the market’s expectations have been for the company and how management has been able to communicate to the market.  A stock that consistently beats is one that has management communicating expectations to Wall Street that can be achieved.  That is what you want to see.

In the case of OKTA, I see four straight beats of the Zacks Consensus Estimate.  So you might wonder, why is this stock the Bear of the Day?

Well the Zacks Rank does care about the earnings history, but it is much more heavily influenced by the movement of earnings estimates.

Earnings Estimates

The Zacks Rank tells us which stocks are seeing earnings estimates move higher or in this case lower.  For OKTA, I see estimates moving lower across the board.

This quarter has moved from a loss of 8 cents to a loss of 20 cents.

Next quarter has seen a similar decrease from -10 cents to -13 cents.

The Zacks Rank is more heavily influenced by the move in the annual numbers, and the movement is also negative for those numbers.

I see 2021 moving from a loss of $0.45 to -$0.50 over the last 60 days.

The 2022 number has moved from a loss of $0.05 to -$0.10 over the same time horizon.

Negative movement in earnings estimates like that are the reason that this stock is a Zacks Rank #5 (Strong Sell).

Valuation

I am partial to growth, so when I see this stock posting 40% topline growth in the more recent quarter I want think that most of the bad news is baked into the stock. The analysts that cover OKTA are suggesting there will be 31% topline growth this year and 29% next year, so fairly consistent growth on top.  The forward earnings multiple is NA as the company is going to be running at a loss for the next year and a half or so.  The price to book at 44x is absurdly high… but this is an asset slim business.  Price to sales is also very high at 37x.

Chart

 

Okta, Inc. Price and Consensus

Okta, Inc. Price and Consensus

Okta, Inc. price-consensus-chart | Okta, Inc. Quote

 

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