Okta Inc (OKTA, Financial) recently experienced a daily loss of 4.05%, contributing to a 3-month decline of 2.7%. With a reported Loss Per Share of $3.69, investors are prompted to question whether the stock is significantly undervalued. This article endeavors to answer this question through a comprehensive valuation analysis, inviting readers to delve into the following financial exploration.
Company Introduction
Okta is a leading cloud-native company specializing in identity and access management. Since its IPO in 2017, Okta has been committed to serving two primary client groups: workforces and customers. Its workforce solutions allow secure access to both cloud-based and on-premises resources, while its customer offerings ensure secure application access. Despite the current stock price of $70.28, Okta's intrinsic value, as estimated by the GF Value at $258.17, suggests that the stock might be significantly undervalued. This valuation discrepancy sets the stage for a deeper examination of Okta's financial health and future prospects.
Summarize GF Value
The GF Value is a unique measure that calculates the intrinsic value of a stock by considering historical trading multiples, a GuruFocus adjustment factor based on past performance and growth, and future business performance estimates. Okta (OKTA, Financial) currently exhibits signs of being significantly undervalued according to this method. With a market cap of $11.50 billion, Okta's stock price is well below the GF Value Line, indicating a potential for high future returns relative to its current market valuation.
Given its significant undervaluation, Okta's stock may offer a substantial long-term return that could outpace its business growth. It's an encouraging sign for investors seeking opportunities with a margin of safety.
Financial Strength
Assessing a company's financial strength is crucial before investing in its stock. Companies with weak financial health pose a higher risk of permanent capital loss. Okta's cash-to-debt ratio stands at 1.34, which is lower than 59.47% of its peers in the Software industry. This metric, along with a financial strength rating of 5 out of 10, indicates that Okta's financial condition is fair, warranting careful consideration by potential investors.
Profitability and Growth
Investing in profitable companies, especially those with a consistent track record, typically carries less risk. Okta's operating margin of -30.66% is concerning, ranking lower than 79.45% of competitors in the Software sector. This factor, combined with a profitability rank of 4 out of 10, points to poor profitability. However, Okta's impressive 3-year average annual revenue growth rate of 33% outshines 85.86% of the industry, highlighting its strong growth despite profitability challenges.
ROIC vs. WACC
An effective way to gauge profitability is by comparing a company's Return on Invested Capital (ROIC) with its Weighted Average Cost of Capital (WACC). Okta's ROIC of -8.93 versus its WACC of 8.58 suggests that the company is not currently generating sufficient returns on its investments, a potential red flag for value creation.
Conclusion
In summary, Okta (OKTA, Financial) appears to be significantly undervalued. While its financial condition is fair, its profitability is subpar, and its growth potential is mixed. For a more detailed financial overview of Okta, investors can review its 30-Year Financials here.
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This article, generated by GuruFocus, is designed to provide general insights and is not tailored financial advice. Our commentary is rooted in historical data and analyst projections, utilizing an impartial methodology, and is not intended to serve as specific investment guidance. It does not formulate a recommendation to purchase or divest any stock and does not consider individual investment objectives or financial circumstances. Our objective is to deliver long-term, fundamental data-driven analysis. Be aware that our analysis might not incorporate the most recent, price-sensitive company announcements or qualitative information. GuruFocus holds no position in the stocks mentioned herein.
