Okta stock price suffered a big reversal this week, making it one of the worst-performing companies. It crashed by over 16% on Wednesday, erasing some of the gains made since April 7. It was trading at $105.23, its lowest level since April 28, and 17% below the highest point this year.
Okta stock price plunges after cautious guidance
Okta is one of the biggest cybersecurity companies in the US with a market capitalization of over $18 billion. It focuses on access solutions that help companies ensure seamless access by customers, employees, and partners.
Okta’s business has grown over the years, and now counts over 20,000 clients, including top names like Peloton, FedEx, Hewlett-Packard Enterprise, and NTT Data.
The company’s annual revenue has jumped in the past few years, moving from $835 million in 2021 to $2.6 billion last year.
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Okta stock price crashed this week after the company published strong results, but warned about its guidance. Its revenue rose by 12% in the first quarter to $688 million, with its subscriptions rising to $673 million.
Okta’s results also showed that its gross margin improved marginally to 81.9%, while its operating margin jumped to 26.7%. The free cash flow margin rose to 34.7%.
The challenge, however, is that the management issued a cautious outlook, citing the uncertain economic environment. It now expects that its revenue for the current quarter will be $712 million, up 10% from last year.
It also expects that the operating income will be between $183 million and $185 million, representing a margin of 26%. The cash flow margin will be 19%.
Okta expects that its annual revenue will grow by between 9% and 10% this year, while the free cash flow margin will be 27%. The CEO said:
“We remain focused on driving profitable growth, accelerating innovation, and delivering the only modern, unified identity security platform for our customers.”
Is it safe to buy the Okta dip?
The forward guidance was in line with what Wall Street analysts were expecting. Their estimate for the current quarter is that its revenue will grow by 10% to $711 million, and the annual figure will rise by 9.6% to $2.86 billion.
Therefore, the Okta stock price tumbled since Wall Street investors anticipated more from the company. The caveat is that, like many other software companies, Okta has always been highly conservative when issuing its guidance. This explains why it regularly does better than expected.
Investors also believe that Okta stock is also relatively overvalued as it has a forward PE ratio of 38, higher than the sector median of 22.
However, a closer look shows that it is not all that expensive. It is growing at around 10%, while its operating margin is 26%, giving it a rule-of-40 metric of 36%. While this figure is below 40, there are signs that the company is narrowing the gap.
Okta has already achieved a healthy rule of 40 when factoring the free cash flow margin, which stands at 42%.
Okta share price analysis
Okta stock chart | Source: TradingView
The daily chart shows that the Okta share price has crashed in the past few days, moving from a high of $127.5 on May 16 to the current $105. It has dropped below the 38.2% Fibonacci Retracement level at $105.93.
It also forms a candlestick pattern with a big body and a medium-sized upper shadow. That is a sign that the stock will attempt to fill the gap, especially now that the macro factors the management talked about are easing. If this happens, the Okta stock price will likely bounce back and hit $120.
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