Okta (NASDAQ:OKTA) stock made a name for itself with the company’s “single sign-on.” However, the question is, can it continue to sign on investors?
OKTA benefited from a steady surge higher over an 18 month period. The rally of Okta Inc stock peaked in July. However, since then, OKTA stock has trended downward with no apparent explanation. Even an earnings and revenue beat by the company failed to stem the tide. While this may seem strange, it has become the latest unpredictable move by a stock that has never traded in-line with expectations.
Okta Inc Stock Remains Overvalued
I tend to be a value investor. As a result, I dislike equities such as OKTA. Because the momentum of these high fliers can change direction at any time, I believe they are dangerous. By steadily moving from the $25 per share range to over $140 per share in 18 months and then sinking tremendously, Okta Inc stock showed how volatile it is.
OKTA trades at around $100 per share. Still, despite the stock’s huge tumble, Okta Inc stock is still not attractive from a fundamental standpoint. Moreover, the shares trades at almost 26 times the company’s sales and 49 times its book value.
Analysts, on average, forecast 41% revenue growth this year and 30.7% next year. Based on OKTA’s past performance, it may even beat those expectations. However, its revenue growth has fallen in recent years. Moreover, not a single analyst expects it to be profitable within the next three years.
Additionally, OKTA has to compete with large, deep-pocketed rivals such as Microsoft (NASDAQ:MSFT) and Alphabet (NASDAQ:GOOGL, NASDAQ:GOOG).
The Price Action of OKTA Stock Remains Confusing
I’m puzzled by the price action of OKTA stock. It peaked in July at $141.85 per share. Since then, it has trended downward. Even after OKTA beat earnings and revenue expectations in late August, its downward trend continued. Although the retreat of Okta Inc stock was natural after its huge rally, such moves usually happen only when a catalyst occurs. The volatility of OKTA may give investors more reason to avoid the name.
The premium given to OKTA because of its status as a cloud stock seems to have faded. Many factors could explain this. However, OKTA stock may have slowly fallen victim to the well-known macroeconomic headwinds with which the market has had to contend in recent months.
Although I do not think any of these factors will prevent Okta’s revenue from growing, the valuations of high-flying tech stocks do tend to drop when economic growth is slowing. Unless and until the economy’s outlook becomes more certain, OKTA stock will struggle.
The Bottom Line on OKTA Stock
OKTA stock has dropped with no obvious, company-specific explanation. It continues to produce both high revenue growth and losses. While that combination drove Okta Inc stock higher in previous years, it seems to no longer to be a positive catalyst for the shares. Moreover, macroeconomic uncertainty seems to be weighing on Okta Inc stock, and that trend could continue.
Since the huge rally of OKTA stock did not seem to be based on fundamentals, the shares could defy predictions and jump again. However, it’s usually challenging to make money on highly volatile, unpredictable stocks. For that reason, I recommend staying away from OKTA stock.
As of this writing, Will Healy did not hold a position in any of the aforementioned stocks. You can follow Will on Twitter at @HealyWriting.
