Okta (NASDAQ:OKTA) has had an impressive run, with Okta stock trading under the radar as a cloud play, and cloud stocks are on fire. There’s no other way to put it.

As the global enterprise world pivots from on-premise to cloud-hosted solutions for price, convenience, and accessibility advantages, the providers of those cloud-hosted solutions are growing by leaps and bounds.

Consequently, the stocks of cloud titans like Salesforce (NYSE:CRM), Adobe (NASDAQ:ADBE), Amazon (NASDAQ:AMZN), and ServiceNow (NYSE:NOW) have soared.

Okta has gained far more than any of those headline cloud stocks over the past few years. It went public in April 2017 at $17 per share and trades today around $110.

What’s the story behind the huge gains from Okta stock? Cloud security. Broadly speaking, everyone and their best friend in the business world is pivoting to the cloud. That means there’s a whole bunch of corporate and customer data up in the cloud. Security surrounding that data isn’t all that great, hence the huge volume of hacks and data breaches over the past few years. Thus, enterprises are increasingly seeking a better cloud security solution. Okta provides just that.

As such, Okta has found itself at the convergence of two secular tailwinds (cloud adoption and cybersecurity). Those two tailwinds have produced huge growth for the company. Shareholders have cheered that big growth, and Okta stock has taken off like a rocket ship.

At these levels, there’s no hiding the truth that Okta stock is expensive. But, is it too expensive? I don’t think so. If you take a big picture outlook on the stock, this is a big growth company with a ton of upside left over the next several years.

As such, I think investors who are late to the party shouldn’t be too concerned. There’s still plenty of long term upside left.

Big Market Opportunity

In the big picture, Okta is attacking an exceptionally valuable and large market with a unique solution, and as this unique solution gains scale over the next several years, Okta’s revenues and profits will continue to grow at a robust pace.

Okta operates in the enterprise cloud market. This is a huge market. Global cloud spend is projected to hit $500 billion by 2020. But, only 20% of enterprise workloads have migrated to the cloud so far. Over time, that number will move towards 100% given that cloud-hosted solutions provide price, convenience, and accessibility advantages over on-premise solutions.

Thus, the big cloud growth narrative is only one-fifth of way through, meaning that the enterprise cloud market is not just big, but also growing very quickly, too.

Within this market, security is a big issue. Everyone is pivoting to the cloud. But, they aren’t just pivoting wholesale to one cloud. Instead, the norm in the cloud market is hybrid cloud, which is essentially adopting multiple different cloud applications depending on the use case (Adobe for visual solutions, ServiceNow for automation, Salesforce for marketing, so on and so forth).

Consequently, the enterprise pivot to the cloud simultaneously means a pivot of valuable corporate and customer information across various different cloud service providers.

That data needs to be protected. But, protecting it isn’t very easy to do. That’s why we have seen so many headline data breaches and hacks over the past few years as the cloud pivot has gained momentum. Thus, consumers are increasingly seeking a uniform cloud security solution.

Unique Solution Gaining Share

Okta provides this uniform cloud security solution, and does so in a unique way.

Okta is creating a new cloud security solution which allows enterprises to seamlessly secure information across all cloud apps at the same time. They call this solution the Identity Cloud.

Essentially, this is a cloud solution centered on individual identity that allows millions of people across a corporate ecosystem to seamlessly, securely, and uniformly connect to the technological tools that the corporation is adopting. This may sound like a complex idea. It’s not. Okta is simply creating an identity-driven security solution wherein controlled identity information is the only way in and out of a system.

This is a big idea. Importantly, it’s a big idea that gaining traction rapidly.

A few years ago, Okta had about 2,000 customers and was doing $30 million in quarterly revenue. Okta closed fiscal 2019 with 6,100 customers on a $115 million revenue quarter. Further, the company exited 2019 with 50%-plus revenue growth rate and a 40%-plus customer growth rate.

In other words, not only has Okta grown very quickly over the past several years, but it is still growing very quickly today, and hardly losing any steam. As such, it is clear to see that Okta’s unique Identity Cloud security solution is rapidly gaining share in the cloud security market.

Big Valuation Warranted Long Term

Okta stock is trading at nearly 700-times projected profits that are still two years out. Thus, this stock is richly valued. But, is it overvalued? I’d say no, if you look at the big picture.

Okta has just over 6,000 customers. There are over 100 million businesses in the world, all of whom could use Okta’s Identity Cloud. Further, cloud spend is at $500 billion and growing. Okta’s revenues this year are projected around $535 million.

Thus, in the big picture, this company is very small relative to its market opportunity. Because of this, management’s long term target for 30%-plus annualized revenue growth into fiscal 2024 seems very doable. Even thereafter, this company should be able to do 20%-plus revenue growth into 2030, as more companies pivot to the cloud and cloud security demand globally grows.

Under those assumptions, this could easily be a $5 billion revenue company one day, and probably by 2030. Gross margins are sky high and projected to rise north of 80% soon. Meanwhile, opex rates are big, but dropping rapidly, and could fall towards 50% at scale. That means 30% operating margins are achievable. On a $5 billion revenue base, that implies $1.5 billion in operating profits. Assuming a normal tax rate and some growth in the share count, that could flow into $8 in EPS by 2030.

Application software stocks normally trade at 35-times forward earnings. Applying that average multiple to $8, a realistic 2029 price target for Okta stock is somewhere around $280. Discounted back by 10% per year, that equates to a fiscal 2020 price target of just under $120. Thus, while Okta stock is richly valued, it isn’t overvalued. Yet.

Bottom Line on OKTA Stock

Okta stock has been one of the market’s biggest winners over the past two years, and with good reason. This company is in the early stages of a really powerful long term growth narrative that will produce robust profit growth over the next several years.

To be sure, a lot of this upside is already priced into Okta stock. But, not all of it. As such, while gains will be more muted going forward, this stock will remain on a medium to long term uptrend for the foreseeable future.

As of this writing, Luke Lango was long OKTA, CRM, ADBE, AMZN, and NOW.