Okta Inc (NASDAQ: OKTA) engages in the provision of an identity management platform for enterprises. The firm's products include single sign-on, multi-factor authentication, API access management, authentication, user management, and lifecycle management. The company was founded in 2009 and is headquartered in San Francisco, CA.
As of 25 March 2022, Okta Inc's stock is trading at $139 and year-to-date (YTD), it is down by 38%. Over the past 12 months, the stock is down by 36%, whilst the S&P 500 is up by 16%, which means the stock has underperformed the broader market by approximately 52% over this period.
Is Okta Inc a long-term investment opportunity? Let’s take a closer look at the company's fundamentals to find out.
Why is fundamental analysis important?
Fundamentals are a set of key metrics that, when looked at holistically, can tell us whether or not a company is likely to be a good investment over the long term. Investors have relied on fundamental analysis for decades to assess the financial health of an organization as well as its growth prospects.
On balance, stock prices are usually driven by a company’s financial performance over the long term, and it makes sense to analyze a company’s fundamentals in detail before deciding to invest.
There are a number of fundamental metrics to analyze, but we'll be focusing on the price to book value (P/BV), price to sales ratio (P/S ratio), earnings per share (EPS) and debt.
What do Okta Inc’s fundamentals tell us about the investment opportunity? Let's have a look.
Okta Inc's stock by the numbers
First, let's look at Okta Inc's EPS, which serves as an indicator of profitability. This metric is calculated by taking a company's net income (after dividends on preferred stock) and dividing this by the number of outstanding shares.
Based on its most recent financials, Okta Inc's EPS is -5.7, and year-on-year, it has decreased by 174%. This is sluggish growth.
Next, let's look at one of the most common valuation metrics - the P/S ratio. It is calculated as the current price divided by sales for the previous 12 months, and helps us get a sense of how much investors are willing to pay for a company's revenues on a 'per dollar' basis.
Okta Inc's P/S ratio is currently 16.5 according to its last reported filings. This is 67% higher than the sector-wide average of 9.8. The fact that it is currently above the sector-wide average isn't particularly encouraging, and indicates that the stock may offer less value compared to other companies in the same sector.
Next, let's look at Okta Inc's price to book value (P/BV), which tells us how much investors are willing to pay for a company's assets. P/BV is used by value investors to identify potential investments, and is calculated by the company's stock price divided by its net assets (or 'book value', meaning the value of all assets which appear 'in its book').
Okta Inc's P/BV is 3.8 according to its most recent financial statements, and this is 63% lower than the average across the industry, which is 10.2.
Finally, when analyzing an investment opportunity, you should always take a look at how much debt a company has on its books, as this can help you assess how risky it is as an investment. Carrying a large amount of debt can be a red flag if the company is not generating enough free cash flow to service the debt.
Okta Inc has total debt of $2.03bn as of 25 March 2022, and this has risen by 3% over the past year. Adjusting for $2.51bn in cash & short-term investments, the company has a 'net debt' of $-477.76m.
Based on these figures, Okta Inc's current levels of net debt don't worry us, as the company generates enough revenue to service its debt, and is not using debt to fund its operations, which is good to see.
Is Okta Inc a good investment?
All in all, when we looked at the underlying trends at Okta Inc, they didn't give us much confidence.
In particular, the stock is down by 38% YTD and down by 36% over the past year. Also, compared to companies in the same sector, OKTA has a higher P/S ratio. This just doesn't give us confidence that the company is on the right track.
All things considered, we're just not sure that Okta Inc is doing enough to deserve a spot in your portfolio right now, but it may be worth adding to your watchlist to keep an eye on in the future.
As with any stock however, there are additional factors to consider before making an investment decision. This analysis is general in nature and based on historical data, and it does not take into account your specific investing objectives or financial circumstances.
Additionally, this article does not look at the macro environment where geopolitical headwinds, internal company changes and individual technicalities in the way a company conducts its business can have a significant impact on a company's long term outlook. Please do your own due diligence before deciding to invest.