There Is A 35% Potential Gain From This 'Underappreciated' Software Stock

In its report published today, UBS said investors are undervaluing Okta due to its "compelling combination of growth and improving profitability". 

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The bank initiated coverage of Okta stock on Friday, with a rating of Buy and a price target of $100, which means that the company's stock price may go up by as much as 35% from Friday's closing price. There has been an 8.7% gain in Okta's shares year to date, which is slightly better than the 7.7% gain made by the S&P 500. There has however been a drop in its stock price of more than 48% over the past twelve months as a result of the company's workforce identity software. 

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The analyst Roger Boyd wrote in an article on Sunday that Okta stumbled in the quarter of CY22, but 10+ conversations over the past two quarters indicate that execution has improved and platform direction has resonated with customers. 

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"We believe that Okta is well positioned to enjoy the continued identity tailwinds, a view underpinned by checks carried out within Okta's customer and partner community demonstrating a strong intention to spend on identity and a detailed analysis of the total addressable market," said Boyd.

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Investors have not fully appreciated Okta's margin expansion opportunity, according to UBS. Okta's operating margins are estimated to grow by over 20% by 2027, according to the bank. As Okta improves execution and revenue growth, Boyd predicts that CY24 revenue growth will jump to 17%/18%, while margin expansion will exceed CY23 [reduction-in-force]-driven margin expansion. 

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Okta has also been predicted to have significant install base growth in the future, according to the analyst. It is estimated that the company has an 80 billion-dollar market opportunity ahead of it.

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The Buy Rating and constructive opinion we hold for Okta are based on the company's ability to grow rapidly in CY24 and continue to increase margins significantly. "By broadening Okta's product portfolio, we expect to be able to support a concerted customer-driven push towards consolidation, which should lead to larger engagements for the company and ultimately better sales efficiency," Boyd added. 

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Okta's growing platform and product roadmap should broadly match customer needs, both in terms of productivity and security. Identities of both employees and customers remain a critical focus area for organizations.

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