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Okta: The Best Risk-Reward Tradeoff In Cybersecurity

Aug. 03, 2021 10:58 AM ETOkta, Inc. (OKTA) StockCRWD, ZS20 Comments
Kennan Mell profile picture
Kennan Mell


  • Okta is an industry leader with a long runway for growth, and I believe that it comes with less risk than the average cybersecurity company.
  • I provide a top-down overview of the cybersecurity industry to show how I arrived at Okta as one of my preferred stock picks in this sector.
  • Like any high-growth company, Okta has some risks. For example, it performs poorly on the Rule of 40.

OKTA headquarters in SOMA district, San Francisco
Sundry Photography/iStock Editorial via Getty Images


Okta (NASDAQ:NASDAQ:OKTA) is one of my top long-term stock picks in the cybersecurity industry because it's the leader in identity management. This is a fast-growing space that I believe carries less risk than

This article was written by

Kennan Mell profile picture
Kennan is a software engineer who enjoys applying his technical background to investing, following Peter Lynch's to "buy what you know." He's received job offers from all of the famous FAMG companies, and graduated cum laude from the Paul Allen School of Computer Science at the University of Washington. Although not an investor by training, he believes that his technical knowledge gives him a unique edge when analyzing high tech companies and finding investment opportunities for a long term time horizon.

Analyst’s Disclosure: I/we have a beneficial long position in the shares of OKTA either through stock ownership, options, or other derivatives. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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Comments (20)

"Okta is not profitable" and not buying it. simple as that.
Thanks for helping me to put this stock into perspective. Your familiarity with security technologies helped along with your financial analysis, a unique and welcomed perspective.

I invested in OKTA at slightly lower levels for the following reasons:

- OKTA owns the category. ADS is the default directory for MSFT and it is a good one. OKTA is as good in the MSFT eco-system as ADS and is the master identity management systems across all other operating systems,
- Identity Management is not only for authentication, its also for non-repudiation which diversifies its use into all security paradigms (surfaces). AI identified policy or technology potential disallowed ingress will map straight back to the directory which is the basic root framework of identity management. I will be very surprised if OKTA-Auth0 aren't developing these types of integration partnerships with security technology and switching companies today, which includes the names in your article. The addressable market for this technology is not limited to its classical role as user management and the associated dimensions such as SSO but rather it should form the basis for weakness identification, mitigation and remediation of network and node potential vulnerability and actual breaches in the future.
- Traditionally companies implemented the identity management solution that arrived with their ERP, OS, cloud service, hybrid, telephony, router-switching (read CSCO) etc. In the security world I see OKTA extending the discipline into the world of PANW, NET, CHKP, S, CRWD, and BB into autonomous vehicles (IoT) for identity recognition and behavior-user resolution which are event initiated as opposed to user, task, or procedure (external, i.e. scanning, sniffing, hacking versus internal). OKTA should develop these relationships and announce them which will satisfy this investor that they have a coherent plan and justify my ongoing risk taking.

OKTA is below their highs, burnished through their acquisition of Auth0, and ready to displace the mistaken belief that directories from different suppliers can be unified in-house. OKTA can control price better and buy the market share they need to prove their domination. Partnerships with other security technologies will improve their partner's offerings and provide, ironically, a trojan horse for OKTA sales.

While I agree with you that buffer overflows are not nearly as effective a vector as they used to be, application and operating system resets in the age of IoT and autonomy whether or not there is an injection of malcode are going to be a huge paved highway into new risk exposures. Resets are bad.

I'll hold OKTA for now pending partnership announcements and roadmap updates. I won't be purchasing any additional given market volatility and the difficulty most technology investors have in understanding infosec.
applyberry profile picture
Thanks can’t believe nobody sees that okta is the most overvalued stock in its category. Loses more money every quarter with little chance to ever be profitable. They even guide more losses. Their business model is un profitable. Anyone who buys at these rediculous prices is just a fool who will lose their money.
Yeah, large enterprise spend (let alone SMB) in IT security solutions has no positive trend, we've seen "peak hacking/breaches"... no need for a diversified portfolio of security solutions like observability, vulnerability, IDM, endpoint and zero-trust solutions since none of them are sufficiently profitable (actually most lose money)... history in losing stocks like TSLA or AMZN or Google has no relevance.
applyberry profile picture
@canyon they all made money and okta loses 100s of million a year losses growing and growth rate slowing. Not a company I want to touch at 40 times unprofitable sales
I wouldn’t be surprised to see them hit on revenue but miss on eps due to auth0 acquisition. With softer guidance proposed by management in last quarter. Personally I would say the risk is higher than the reward until after earnings as I’d bet the stock drops. Just my two cents and I personally hope it does so I can buy more and make it me 3/4 largest position
Agree with the other commenters, very useful intel. I've been thinking about starting a position, I believe you may have convinced me.....
Thank you for the informative article with some interesting insight.

Your take on lower risk for identity mgmt is especially interesting to me.
I've cashed in on OKTA before, and it's been high on my watchlist for a few years since.
I think you've convince me to slowly buy into this stock again for long-term.
Will follow you and look forward to more. Thanks again.
Kennan Mell profile picture
@Rational Investment Advice Please Thanks for the nice comment and for following!
Best article about OKTA so far. I am a software engineer too and agree with your reasons for selecting OKTA in cybersecurity world. I bought some shares recently first time to hold them long-term. Long time ago bought PANW (a network engineer recommended) and nothing else i own from cybersecurity world. Will follow you from now to see other tech stocks recommendations. I don't have time to analyze them. At which price would you add more shares of OKTA? Thanks.
Kennan Mell profile picture
@alla_al I typically just DCA at (almost) any price in order to build a full position over the course of months. I added to Okta a couple weeks ago. For high growth companies, even if their valuation compresses 50%, they can offset that with their growth in just a couple years. So I don’t worry too much about valuation/market timing, as much as I worry about choosing companies that aren’t likely to experience a slowdown in growth. But it also depends on your time horizon and ability to DCA. Glad you liked the article and thanks for following!
Kennan Mell profile picture
@alla_al I’ll also add that I usually defer to analysts on valuation since I don’t have formal financial training. Morningstar has a 3 star rating on Okta with a FVE of $250 while the average analyst price target is $276 per Finviz. I also look at the historical valuation which is the only point of concern for me, but the whole market is elevated right now. I’ll add to my positions as long as the analyst price targets are reasonably close to the current price, and for my highest conviction holdings I’d add either way
@Kennan Mell me either and i don't have even time to gain the finance knowledge, so I'll appreciate if you add on your next article some analyst's fair value / target price.
Nice job OP
EconAnalyst profile picture
Well done, I have been interested in Okta for a while but even the 35x P/S scared me quite a bit. This is a fantastic article that actually describes the business in detail - far from common on SeekingAlpha... Earned a follow from me!
Kennan Mell profile picture
@EconAnalyst Yeah, the 35x P/S is still very high. Something closer to 20 might be more sustainable long term. But whether it crashes to a lower level this year or slowly reverts to that level over multiple years while growing revenue at a market beating rate is anyone’s guess. For me, I prefer to dollar cost average and build my position slowly instead of waiting for a great price and going all in. But each person’s strategy will be different since they might not have an income stream to DCA with, for example. Anyway, happy to hear you liked the article and thanks for the follow!
Peled111 profile picture
smart article
Kennan Mell profile picture
@Peled111 Glad you liked it!
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