OKTA Faces 'Upside Pivot on Steroids' as Price Target Gets Upgrade

Okta Inc OKTA will report the firm's second quarter financial results on Tuesday night. In an earnings week crowded with a crop of well-known names and even a couple of cyber-security focused types, is OKTA the unrefined gem in the bunch? Of course, OKTA is not quite the same as the others.

Cybersecurity platform provider Palo Alto Networks PANW posted a solid quarter last week. Shareholders were rewarded. Two Palo Alto competitors, CrowdStrike Holdings CRWD and SentinelOne S will also report this week. I am long all three of those names, though I have halved my stake in SentinelOne. Zscaler ZS will report next week.

OKTA is a little different, though. OKTA is about secure connections. Through the firm's two platforms (Okta and Auth), customers are able to securely connect to the right people at the right time. The San Francisco-based company allows clientele to integrate with nearly any application or cloud that they come across in their businesses, while the firm securely embeds identity into the client's software allowing them to both innovate and remain focused on their core businesses.

Monday Morning

Ahead of Tuesday's numbers, Truist Analyst Junaid Siddiqui upgraded OKTA from a "Hold" rating to a "Buy" rating while taking the firm's target price up to $125 from $100. Siddiqui sees Okta is approaching an inflection point as he sees headwinds from seat count pressure and go-to-market changes abating during the second half of the fiscal year while the company's all-in-one identity platform seems to be resonating with customers. Siddiqui is rated at slightly better than four stars out of five by TipRanks.

Last Month

Interestingly, about a month ago, Okta and Palo Alto announced that the two firms would be expanding upon their partnership to provide AI-driven security solutions to fight threats to identity-focused cyberattacks. The firm noted at the time that the integration of services would help provide a path for joint customers (of which there are enough) to secure their operations while reducing costs and streamlining complexities.

Toward the end of July, Okta and other cybersecurity stocks rallied as the acquisition of CyberArk CYBR was announced by that very same Palo Alto Networks. Reports circulated at the time that Okta might be at the center of some take-over speculation that could involve a larger cyber-security software provider.

Expectations

Going into Tuesday night's release, OKTA is expected to post an adjusted EPS of $0.85 on revenue of almost $712 million. This would compare well to the year-ago adjusted bottom-line print of $0.72, but reflect year-over-year sales growth of just 10.2%. That pace of sales would be a deceleration from what we have seen from this firm over the past year and a half or so. 

Additionally, this year-over-year deceleration is expected to carry over into the next two quarters. That does concern me a bit. All of the cybersecurity firms are seeing a deceleration, but not like this. This is concerning. Everyone else seems to still be seeing growth in the mid- to high teens. SentinelOne, for one, is still seeing growth above 20%. OKTA still trades at 28-times forward looking earnings. If it's not a growth stock, that does concern a bit.

On the other hand, of the 41 sell-side analysts that I can fund that cover OKTA, all 41 have revised their Q2 earnings estimates higher since the start of the quarter. Does that mean OKTA is starting to get something right? Siddiqui seems to think so.

The Chart​

Hmm... Now this is interesting. What we see here is a falling-wedge pattern of bullish reversal. Does the stock have to pop now? No, but interestingly, readers will see that the 21-day EMA, 50-day SMA, 200-day SMA and upper trendline of the falling wedge have all ​congregated between $92.10 and $96.30.

This is not just an upside pivot; this is potentially an upside pivot on steroids. Relative strength is weak but improving. The daily MACD is not necessarily bullish, but the histogram of the nine-day EMA has moved into positive territory as the 12-day EMA appears to be attempting a crossover of the 26-day EMA as we speak. That would be a bullish move.

Put it this way: If a positive reaction to Tuesday's earnings moves the last sale above all of those moving averages, swing traders will get on board as professional money increases exposure. This might be worth a trade. 

For investors, the stock taking and holding those lines could make prices up around $115 realistic. I will probably take on a small-sized long position for a trade on Monday. It won't be permanent, as I do not wish to become over-exposed to the cybersecurity space.

At the time of publication, Guilfoyle was long PANW, CRWD and S equity.