Shares of Okta (OKTA, Financial) experienced a significant decline of 14% as investors reacted to the company's fiscal Q1 2026 results. Despite the downturn in stock price, Okta reported robust earnings of $0.86 per share on revenue of $688 million, surpassing Wall Street expectations of $0.77 per share on sales of $680.1 million.
Okta (OKTA, Financial) demonstrated notable financial strength, with its adjusted earnings showcasing a strong performance. However, the company's GAAP earnings stood at $0.35 per share, up from a loss of $0.24 per share in the same quarter of the previous year. This improvement highlights Okta's ability to enhance profitability even when accounted under stricter GAAP standards. Additionally, free cash flow reached $238 million, marking a significant fourfold increase compared to reported profits and an 11% increase year-over-year.
Looking ahead, Okta forecasts a sales growth of approximately 10% for Q2, with annual growth projections between 9% and 10% for fiscal 2026. The firm also expects adjusted profit guidance of $0.83 to $0.84 per share for Q2 and $3.23 to $3.28 per share for the year, both exceeding analysts' expectations.
Despite these optimistic projections, concerns about Okta's (OKTA, Financial) stock valuation linger among investors. Currently trading at 24.5 times trailing free cash flow, the stock's valuation appears inflated, especially considering the recent slowdown in both sales and free cash flow growth. Furthermore, according to GuruFocus' GF Value GF Value estimate, the stock is modestly overvalued, with a GF Value of $94.17, and a market price of $107.93. This discrepancy adds to the apprehension regarding its current valuation.
With a Piotroski F-Score of 7 and a strong Altman Z-Score of 4.31, Okta (OKTA, Financial) exhibits solid financial health. Despite strong financial indicators, including a high profitability score marked by margin expansion, the stock's elevated price-to-earnings (PE) ratio of 2698.25 underscores market concerns over its high valuation. The recent insider selling activities, with six transactions over the past three months, could also be contributing to the sentiment surrounding Okta’s current stock performance.
For now, Okta (OKTA, Financial) stands in the speculative growth category, drawing attention for its robust earnings growth and expanding profitability. However, investors are urged to consider the potential valuation risks against the backdrop of its current market performance.
