Get Ready To Buy The Dip In Okta Stock

Shares of identity and access management company Okta (NASDAQ: OKTA) are in the middle of a heavy slide from last month’s all-time highs. Though they managed to finish off the lows, yesterday’s drop means they’ve now notched a full 25% decline in less than a month. It’s somewhat reminiscent of the stock’s 35% drop this time last year although there are different drivers in play.

Back then, it was the COVID pandemic. This time it’s part of a broader sell-off in the growth space, with the tech-heavy NASDAQ index turning negative for the year yesterday. There's no reason to think this is the start of a multi-month slide, but a weak earnings report from Okta this week too did them no favors.

So-So Earnings

After the close of Wednesday’s session, the San Francisco-based company reported their Q4 earnings. While topline revenue was up 40% on the year and comfortably ahead of analyst expectations, bottom line GAAP EPS registered a miss as it landed in the red. While investors might have overlooked this if there was a bid elsewhere in tech, Wall Street is definitely a little spooked right now as interest rates tick higher so there were no prisoners taken.

In addition to the miss, softer forward guidance than expected added to the short-term bear case, as did the company’s announcement of their plans to acquire Auth0 for $6.5 billion. Shares were sold heavily into Wednesday’s close and then gapped down further at yesterday’s open. There’s no doubt that Okta’s stock is in the ugly bucket on Wall Street for now, but for investors with a longer-term view there’s an attractive buying opportunity opening up.

Wall Street Remains Bullish

In the aftermath of Wednesday’s release, Deutsche Bank was quickly out with a reiteration of their Buy rating on Okta shares. They cited a “so-so” earnings report and reined in their price target from $313 to $270, but this still suggests upside of some 20% from Thursday’s close. The folks over at Piper Sandler also took a cautious approach by reducing their price target, but stopped short of a full downgrade. They’re of the opinion that the soft forward guidance will turn out to be fairly conservative in hindsight, a view also shared by Canaccord Genuity. The latter went so far as to upgrade their rating on Okta from Hold to Buy, while maintaining a juicy price target of $300 and pointing out the solid entry opportunity that’s opening up.

As the world continues to become more digital at an ever-increasing pace, the need for products like Okta is only going to increase. It’s safe to say there’s a massive addressable market in front of them but perhaps shares got a little ahead of themselves in recent months. For those of us fortunate enough to be on the sidelines, that can only be a good thing.

There’s solid support around the $200 mark and were shares to trade down that far, there’d be a strong argument for backing up the truck. Okta is an out-and-out category leader that commands a $30 billion market cap, and they have a bright future ahead of them. This isn’t their first double-digit percentage selloff in the past year, and if it’s anything like the others, we’ll come to look at it as a marvelous buying opportunity in hindsight.