Buy Early, Buy Okta

As investors have dumped equities and headed for the safe harbors of US treasuries and gold in recent weeks, few stocks have remained attractive in the short term. For those that have, by being dragged down by the broader market, some golden buying opportunities are opening up. The San Francisco based, access management SaaS platform Okta (NASDAQ: OKTA) is one such company.

From their IPO in the middle of 2017 through the middle of last month, Okta’s shares had rallied almost 500%. A 30% haircut last summer had been quickly forgotten about and shares were trading at all-time highs as recently as February 19th. They’ve shown remarkable resilience in the three weeks since and flighty investors would do to take notice of the underlying strength and demand for shares.

When the first big gap down open in equities came on February 24th, like almost every other name out there, from tech to industrials, Okta shares were dumped. However, whereas the major indices like the S&P 500 and the NASDAQ remained under pressure and on a downward slope, Okta shares had filled in the gap last Monday and were up 6% from the last week of January. In contrast, the NASDAQ was down 4%.

Impressive Strength

This past Monday saw the biggest daily drop in stock markets since the 2008 and understandably, Okta was dragged down once again. But it’s already started to fill in the gap and clearly wants to get back to highs. One positive and fundamental catalyst at work here is the company’s recent Q4 earnings which they released in the second half of last week. EPS and revenue both came in above analyst expectations with the latter in particular grabbing headlines with a 45% jump year on year. Okta had beaten the topline and bottom-line consensus 100% of the time in the past two years while estimates on their EPS had been revised upward 16 times in the past three months and revenue 15 times so Wall Street might have been expecting a beat. But still, these were impressive numbers.

Aside from the headline-grabbing figures, the likes of their subscription revenue business grew an appetizing 46% while their revenue backlog 66% year on year.

The company’s co-founder and CEO, Todd McKinnon, commented with the release; "our strong fourth-quarter performance caps another fantastic year of growth and expansion. We continue to post industry-leading growth for subscription revenue, remaining performance obligations, and billings while achieving positive operating and free cash flows for the year. Our unparalleled cloud-based platform and continued execution is allowing us to achieve this exceptional growth at scale. We’re still in the early days of a massive addressable market to modernize identity for the workforce and customers and we are in the leading position to capitalize on the opportunity for many years to come."

Leading Its Peers

In the face of all this bullish momentum, it’s not hard to see why there’s been such strength in Okta shares even as equities markets have firmly taken on risk-off sentiment. And this kind of strength compared to its peers isn’t anything new. Microsoft (NASDAQ: MSFT), Oracle (NYSE: ORCL) and Akamai Technologies (NASDAQ: AKAM) are some of Okta’s main competitors. Investors will note with a decent amount of satisfaction that Okta has wiped the floor with them since its first day of public trading. Okta is up over 400% while the others come in at 145%, 10% and 48% respectively. To be fair, Okta specializes in the single-sign-on functionality but it has still planted itself firmly as the market leader from the very beginning.

If or when the coronavirus has driven global financial concerns abate, there will be a rush back to equities in a firmly risk-on environment. For a company that’s weathered the storm so far so comfortably, it’s exciting to think about what Okta’s stock will do when good weather finally returns.