What’s Behind Okta’s 10% Stock Slide?

June 4th, 2025 by Trefis Team

OKTA

Okta

Cybersecurity specialist Okta (NASDAQ: OKTA), a leader in identity and access management, has seen its stock decline by approximately 10% over the past month, despite reporting strong first-quarter earnings that exceeded analyst expectations. The downturn is largely attributed to prevailing economic uncertainties due to tariffs. However, with a year-to-date increase of nearly 30%, Okta’s stock presents an intriguing case for investors. See Buy or Sell Okta Stock?

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Strong Q1 Performance

Okta’s Q1 revenue increased 12% year-over-year (y-o-y) to $688 million, surpassing its prior forecast of $678 million to $680 million. The company’s subscription revenue also rose 12% to $673 million, while adjusted EPS jumped 24% y-o-y to $0.86. Notably, Okta reported positive free cash flow of $238 million for the quarter, up 11% year-over-year. It should be noted that the net dollar retention rate stood at 106%, down from 111% a year ago and 117% two years ago. However, the company saw growth in its high-value customer base, with customers having annual contract values (ACVs) above $100k increasing 7% to 4,870, and those with ACVs above $1 million rising 20% y-o-y.

Okta maintained its fiscal 2026 revenue forecast of $2.85 billion to $2.86 billion, representing 9-10% growth. However, it increased its adjusted EPS outlook to $3.23-$3.28. For Q2, the company guided for 10% revenue growth to $710-$712 million, with adjusted EPS of $0.83-$0.84.

Growth Prospects and Challenges

The broader cybersecurity market is projected to grow significantly, with investments expected to exceed $298 billion annually by 2028. Okta’s identity management platform remains integral to securing access across various applications, particularly as businesses increasingly adopt cloud-based solutions. Management highlighted strong demand for newer products, such as Identity Governance and Privileged Access, and is taking steps to address rising security risks related to AI agents and non-human identities.

Valuation Concerns

With a market cap of $17 billion and a price-to-sales (P/S) ratio of about 6x based on analysts’ fiscal 2026 revenue estimates, Okta is reasonably valued compared to other leading cybersecurity stocks. However, priced at 25 times trailing free cash flow, Okta stock appears somewhat expensive given its low-teens sales and FCF growth.

In conclusion, Okta’s recent stock decline presents both opportunities and challenges for investors. While the company’s strong Q1 performance and growth prospects are promising, valuation concerns and slowing growth rates warrant caution. As with any investment, it’s essential to weigh the pros and cons carefully and consider diversified options to minimize risk. The Trefis High Quality (HQ) Portfolio, with a collection of 30 stocks, has a track record of comfortably outperforming the S&P 500 over the last 4-year period. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index, less of a roller-coaster ride, as evident in HQ Portfolio performance metrics.

It should also be noted that stocks can drop sharply – 20%, 30%, even 50% –as we’ve seen during past market shocks. No stock is immune. Our dashboard How Low Can Stocks Go During A Market Crash captures how key stocks fared during and after the last six market crashes.

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