One of the best ways to invest in the stock market is by identifying secular megatrends, and finding the most innovative companies at the forefront of those world-changing trends. This simple yet effective investment process is why I’m so bullish on Okta (NASDAQ:OKTA) stock.
The story here is pretty simple.
Thanks to Covid-19, the cybersecurity market is undergoing a paradigm shift from perimeter-based security to identity-based security, because the latter is better suited for the hybrid and remote work models of the future. Okta is at the epicenter of this paradigm shift, pioneering a novel, market-leading identity security solution that has visibility towards reaching enterprise ubiquity.
The company is in the first few innings of a decade-long growth narrative, wherein revenues and profits will soar. As they do, the stock price will follow suit — and ultimately, OKTA stock will emerge as one of the market’s biggest winners in the 2020s.
Needless to say, long-term investors should consider taking a “buy-and-hold” position in OKTA stock.
Here’s a deeper look.
A New Era of Identity-Based Cybersecurity
The Covid-19 pandemic has changed a lot of things about the world.
One of the bigger changes has been a paradigm shift surrounding how we work, from an office-centric, on-premise approach, to a hybrid remote work model. This change is permanent. Long after the pandemic passes, offices will continue to be virtualized, because hybrid work models lead to equal (if not more) productivity with lower costs, and therefore, result in enhanced efficiency.
This paradigm shift in how we work has prompted an equally large paradigm shift in how we protect our work. In the days of office-centric work models, perimeter cybersecurity models, which essentially created a virtual “wall” around an office, were sufficient. But, in the days of hybrid and remote work, those “walls” don’t cut it.
Instead, we are entering a new era of identity security models that focus on securing the identity of each individual in an ecosystem. Basically, these new identity security models throw out the virtual “wall” and replace it with virtual “body armor”, so that employees, workflows, and data are safe everywhere, all the time.
With its disruptive and market-leading Identity Cloud platform, Okta is at the epicenter of this cybersecurity paradigm shift — which, of course, positions OKTA stock for strong long-term gains.
Okta Is the Identity Security Leader
Okta’s Identity Cloud platform focuses on leveraging technologies like multi-factor authentication , single sign-on, universal directories, and lifecycle management to create a unique, identity-focused cybersecurity suite that securely connects the right employees, to the right applications, at the right times.
It’s a breakthrough platform that is leading the current paradigm shift towards identity-based cybersecurity.
Okta has been named a leader in Gartner’s Magic Quadrant for Access Management for four straight years now, and has averaged ~50% year-over-year revenue growth over the past 10 quarters.
Alongside this sustained robust revenue growth, Okta has also leveraged its hyperscalable software-centric business model, which features 75%-plus gross margins, to drive consistently positive and meaningful operating leverage. Ten quarters ago, operating margins were in the -10% to -20% range. Today, they are closing in on 5%.
Robust revenue growth plus big margin expansion has set the stage for meaningful outperformance from OKTA stock. Over the past three years, OKTA stock has risen just shy of 750%.
The best part?
With just a $30 billion market cap, Okta has plenty of runway ahead to sustain big growth for shareholders.
Long Runway for Growth Ahead
Okta’s revenues will come in this year a little bit over $800 million.
That represents a measly 0.02% of the $3.5 trillion companies allocated to IT budgets in 2020. Yet, Okta’s Identity Cloud platform represents the future gold standard in cybersecurity as enterprises shift towards hybrid and remote work models.
This discrepancy between where Okta is today — 0.02% IT spend penetration — and where Okta is going tomorrow — ubiquitous enterprise adoption — implies tremendous growth potential ahead for this hypergrowth software company.
That’s why Wall Street sees Okta sustaining 20%-plus revenue growth for the next 5 years, and 10%-plus revenue growth for the next 10 years.
Alongside that sustained huge revenue growth growth, operating margins will continue to push meaningfully higher, both because gross margins are high and because the operating margin base today is still so small.
Big revenue growth plus big margin expansion equals big profit growth. It should be no surprise, then, that Wall Street sees Okta’s earnings per share running from about $0 in 2020, to over $15 by 2030.
As go profits, so go stocks.
OKTA stock will be no exception. As profits roar from $0 to $15 per share over the next decade, OKTA stock will climb ever higher.
Bottom Line on OKTA Stock
Let’s not overcomplicate things here.
Hybrid work is the future of work. Identity security is the future security model in the hybrid work future. Okta has the market’s best identity security platform.
Revenues and profits are going to soar over the next 5 to 10 years. So will OKTA stock.
On the date of publication, Luke Lango did not have (either directly or indirectly) any positions in the securities mentioned in this article.