Does Okta's Results Justify Share Price?

Okta, Inc. (NASDAQ: OKTA), which traded as low as $25 in the last year, topped $75, bottomed at below $45 and traded at $65 after reporting third-quarter results. At 22 times sales (P/S), the stock is not cheap but a strong guidance re-affirms the positive momentum in the business.

Okta’s revenue grew 58% Y/Y. For the fourth quarter, revenue of up to $108 million is above the ~$100 million consensus. EPS loss of $0.09 - $0.08 is better than the -$0.11 consensus. At this pace of growth, the forward P/S multiple will fall in 2019. And when the market is pricing in forward expectations, chances are good the stock will continue moving higher.

Okta has strong long-term prospects. FCF numbers look good and will turn positive for the full-year within the next one to two years, based on the life cycle of its software product. The third quarter marked the first time the company reported positive FCF.

Fundamentally, Okta’s product release cycle is incredible. It has a natural momentum of rolling out 40 new releases, using an Agile software development model. The more features and functions that it adds that customers wants, the more repeat business and new customers it will earn. Companies like Deloitte are more interested in working with Okta because of its know-how in cloud development, digital transformation, and convergence. These are all growing areas that enterprise customers demand.