Forget the lack of earnings for the moment; lots of companies bleed cash in their infancy. Even just focusing on revenue, Okta is valued at a stunning 25.7 times its trailing sales of $486.8 million.
The S&P 500’s price/sales ratio right now is an above-average 2.2. By that measure, Okta is overvalued by a factor of more than ten.
Okta would need to grow its top line all the way from $486 million now to $5.6 billion to fairly justify its current market cap of $12.3 billion. Even allowing a little more wiggle room that tech stocks often command, a top line of $5 billion would still be a necessity. That’s more than a 1000% improvement in sales in a market that Microsoft and Google are also in.
I have no current position in Okta, but I know a number here do. I am not saying that I agree with the above assessment specifically, but the article follows the line of thinking that I had when I sold it.
For those who care, I have taken another swig of the Kool Aid and am now long on TTD, AYX, MDB, TWLO, CRWD, ZS, SMAR, ROKU, SQ, SHOP, ESTC, ENPH and most recently SFIX.
I am heartened (and a bit surprised) how well they are faring, in general, on a day when fear seems to wrap its long fingers around the heart of many.
Though Forrester gave Okta the highest praise in the second quarter of the year by calling it the leader of the IDaaS (identification as a service) industry, that industry’s players also included Microsoft (NASDAQ:MSFT) and Alphabet (NASDAQ:GOOGL, NASDAQ:GOOG).
No company wants to have to stand up to Google or Microsoft.
The S&P 500’s price/sales ratio right now is an above-average 2.2. By that measure, Okta is overvalued by a factor of more than ten.
Okta would need to grow its top line all the way from $486 million now to $5.6 billion to fairly justify its current market cap of $12.3 billion. Even allowing a little more wiggle room that tech stocks often command, a top line of $5 billion would still be a necessity. That’s more than a 1000% improvement in sales in a market that Microsoft and Google are also in.
This writer does not make a convincing case. The list of failed Google products is very long, and just because Google and Microsoft are in the same market, does not mean they will instantly succeed. The same goes for Microsoft. Anyone who sold Facebook because of Google+ or sold Apple because Google entered the cell phone market probably regrets those moves now. This is a very basic, misleading article. Especially when one compares P/S ratios of OKTA with the S&P 500. One may as well be talking about the price/book ratio of OKTA compared to, say, Micron as a gauge to whether or not OKTA is overvalued.