Undeniably, one of the top growth names in the broad technology sector is Okta (NASDAQ:OKTA). A specialist in the burgeoning identity control and management segment, OKTA stock is fundamentally relevant. And it’s technically relevant too, jumping to a nearly 67% year-to-date lead.
Moreover, shares have really had only one trajectory since its April 2017 initial public offering. After its first session, the OKTA stock price closed up at $23.51. Since then, early stakeholders in the tech firm have profited an astonishing 349%.
Now, we’re at the point when OKTA stock has hit overbought levels as based on the relative strength indicator (RSI). I never recommend making a big move on any one indicator. However, it’s worth noting that the last two times OKTA triggered the RSI, shares turned volatile.
Adding to the reservations, Zacks Investment Research recently downgraded the shares. Although most analysts remain bullish on the OKTA stock price, a significant percentage are fence-sitters. Considering that shares have flown past the average-price target of $88.53 — closing just shy of $110 yesterday — not much room seemingly exists for additional upside.
Currently, it’s a battle between technical concerns and the fundamental potential for the company. If you’re thinking seriously about buying OKTA stock, though, I suggest a much-clearer route: wait. Shares will probably correct, and here are three reasons why.
OKTA Stock is Overvalued
Let’s just cut straight to the chase: the OKTA stock price today is simply overvalued. I’m in the same camp as fellow InvestorPlace contributor Bret Kenwell. He recognizes the company as a growth monster, but he’s also rational. Kenwell writes:
Generally speaking, I don’t like to chase stocks. Okta may be a great company but that doesn’t mean I want to pile into the name after we’ve seen a near-24% rally in the S&P 500 index and a near-30% rally for the PowerShares QQQ ETF (NASDAQ:QQQ) since Christmas.
But it’s not just about market concerns, although those are obviously important. Instead, I’m also looking at the grand scheme of things. The OKTA stock price is also overvalued relative to the identity-management industry.
In 2017, the global identity and access management (IAM) market had a value of $8.85 billion. Experts in the field predict a low-double digit CAGR up to 2025. Other sector analysts are more optimistic, targeting a CAGR of 16%. That would mean by 2022, the IAM industry could have a value of approximately $24 billion.
That’s all great news. But OKTA sports a market capitalization of slightly over $12 billion, substantially exceeding IAM’s present international market value. Further, 2018 revenue totaled just under $400 million, while net-income losses have consistently widened.
In my view, this is a clear sign that the OKTA stock price has gotten well ahead of itself.
OKTA Faces Serious Competition
Although Okta’s shares have experienced a mercurial rise to the top, it’s also not surprising. IAM is an incredibly relevant industry, and it’s so much more than its rather sober title suggests.
Sure, IAM protocols enhance a corporation’s security measures. In light of massive scandals like the Equifax (NYSE:EFX) breach, businesses are finally taking digital protections seriously. However, think about the mundane stuff, such as memorizing passwords. With Okta’s solutions, you can enjoy a one-stop shop for your data-organizational needs.
Again, it’s no surprise that shares have skyrocketed. But because IAM is so lucrative, it attracts competition. We’re not talking about bit players, either, but something that reads like the who’s who of tech: Amazon (NASDAQ:AMZN), Microsoft (NASDAQ:MSFT), Oracle (NYSE:ORCL) and IBM (NYSE:IBM), to name but a few.
At any moment, these giants could squash Okta. Plus, a buyout that would launch the OKTA stock price isn’t guaranteed. After all, Amazon already has viable cloud solutions. It won’t take much for them to enter IAM and disrupt it. Which leads me to…
IAM Is Ripe for Disruption
Speaking of disruption, Okta faces somewhat of a double-edged sword. On one hand, they’re enjoying tremendous momentum getting their product quickly to the ground floor. But on the other hand, IAM doesn’t have a very high barrier to entry.
One of the obvious technologies that can benefit this industry is the blockchain. In a nutshell, the blockchain represents both a decentralized and immutable platform. It’s perfect for controlling information access and to establish a perfect “paper” record of activity.
But the problem for Okta as a publicly traded entity is that the blockchain is open source. Essentially, this groundbreaking technology is free. All someone needs is a good idea and some modest operational funds to potentially disrupt IAM.
Okta is playing that disruptive role right now, which suits OKTA stock holders just fine. However, at this current price point, the company is too much of a risk. If you like the concept, my suggestion again is to wait. I’m almost certain we’ll see a better price shortly.
As of this writing, Josh Enomoto did not hold a position in any of the aforementioned securities.