“Armchair Trader Series” Recommendations
- Week Beginning -
Monday, October 15, 2018

by Ian Harvey

IMPORTANT NOTE: This is a recommendation and individual members can use their own discretion as to when to enter or exit!

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Option Trade – Okta Inc (NASDAQ: OKTA) Calls

Wednesday, October 17, 2018

** OPTION TRADE: Buy the OKTA FEB 15 2019 70.000 CALL at approximately $4.50. Place a pre-determined sell at $9.00.

Also include a protective stop loss of $1.80.

Cloud-based security services specialist Okta Inc (NASDAQ: OKTA) moved higher in September after the cloud-based security specialist posted another strong earnings report, as the company's results easily topped its own guidance and analyst estimates. The stock finished September up 14%.

Like all other stocks this month, so far, the pullback has had varying effects; however, Okta has managed to hold up better than most!

Prices are below the 50-day moving average line but above the rising 200-day average line. Prices bounced from around $55 which is in the upper half of the $59-$49 support area from June to the middle of August. The daily On-Balance-Volume (OBV) line has not declined much this month suggesting that sellers of OKTA have not been that aggressive. And the Moving Average Convergence Divergence (MACD) oscillator has begun to narrow towards a potential cover shorts buy signal.

About Okta…..

Okta's digital identity and access management platform stores a multitude of employee login credentials that can be accessed with a single sign-in. But that's just the beginning, as the cloud-based platform also handles staff access to a variety of business software and applications while helping eliminate the temptation to reuse old passwords.

Okta, Inc provides identity solutions for enterprises, small and medium-sized businesses, universities, non-profits, and government agencies in the United States and internationally.

The company offers Okta Identity Cloud, a platform that offers a suite of products to manage and secure identities, such as Universal Directory, a cloud-based system of record to store and secure user, application, and device profiles for an organization; Single Sign-On that enables users to access their applications in the cloud or on-premise from various devices with a single entry of their user credentials; Adaptive Multi-Factor Authentication, a product that provides an additional layer of security for Web and mobile applications, and data of organization; Lifecycle Management, which enables IT organizations or developers to manage a user's identity throughout its lifecycle; API Access Management that enables organizations to secure APIs; and Mobility Management, which simplifies and automates mobile device administration and provisioning across phones, tablets, and laptops.

Past Performance…..

Shares of Okta, which provides enterprises with cloud-based identity-verification and security tools, jumped 19% on Sept. 7 after the company issued another blowout earnings report.

Okta's strong momentum continued as the company posted 57% revenue growth to $94.6 million, crushing estimates at $84.8 million and the company's own guidance of 39% to 41%.

On the bottom line, margins improved, but the company's adjusted per-share loss remained even with a year ago at -$0.15, in part due to an increased share count after last April's IPO. That figure did beat expectations of -$0.19.

Future Earnings…..

OKTA is expected to report the next earnings on December 5, 2018. In that report, analysts expect OKTA to post earnings of -$0.12 per share. This would mark year-over-year growth of 36.84%. Meanwhile, the latest consensus estimate is calling for revenue of $96.74 million, up 41.76% from the prior-year quarter.

OKTA's full-year Consensus Estimates are calling for earnings of -$0.47 per share and revenue of $374.37 million. These results would represent year-over-year changes of +38.96% and +43.99%, respectively. 

Moving Forward…..

Since Okta has yet to achieve profitability, investors are looking for signs of the company's scalability. As long as Okta is showing its economics can improve as its customer base grows, investors can count on the company becoming profitable over the long haul.

Fortunately, Okta showed year-over-year improvement across its gross margin, operating margin, operating cash flow margin, and its free cash flow margin. Operating cash flow and free cash flow margins, for instance, improved 480 and 540 basis points year over year, respectively.

Okta's second quarter was an acceleration in the year-over-year growth rate of customers with over $100,000 in annual recurring revenue. In the second quarter, these customers increased 55% year over year. This compared to 52% year-over-year growth in Q1. The acceleration was "a testament to the increasing strategic need for an identity solution as organizations move to the cloud," said CEO Todd McKinnon in the second-quarter earnings release.

Influencing Factors…..

More companies are digitizing their operations, embracing the cloud and paying more attention to security issues, which is providing a great opportunity to companies like Okta.

Last Thursday and Friday saw two doji patterns emerge which happens when the open and closing price for the day is the same or nearly the same. This very old method of analyzing the markets rests on the relationship between the open and the close - or a daily battle between the bulls and the bears. The bulls are in control if the close is higher than the open and the bears are in control if the close is lower than the open. When the open and close are the same it means there is a balance and this can mark a turning point.

And at close of last week saw that prices closed well off the low of the week; and volume at price data suggested good support below $56 down to $48.

With this scenario there will be buyers due to the pullback – which is what occurred yesterday.

Okta has scored a number of new customer relationships, including the Orlando Magic basketball team, Pret a Manger, and Cisco Meraki. And it is expanded existing ones, showing the scalability potential of its model.

Analysts and Hedge Funds Opinions

Okta‘s stock had its “buy” rating reaffirmed by equities researchers at Canaccord Genuity in a report released last Wednesday. They presently have a $75.00 price target on the stock. Canaccord Genuity’s target price suggests a potential upside of 37.26% from the company’s previous close.

Several other equities analysts have recently commented on the company…..

  • William Blair restated an “outperform” rating on shares of Okta in a research report on Wednesday, October 10th.
  • Canaccord Genuity restated a “buy” rating and set a $75.00 target price on shares of Okta in a research report on Wednesday, October 10th.
  • Oppenheimer increased their price objective on shares of Okta from $60.00 to $80.00 and gave the company an “outperform” rating in a research report on Friday, September 7th.
  • BidaskClub upgraded Okta from a “hold” rating to a “buy” rating in a research note on Saturday, August 25th.
  • Canaccord Genuity lifted their target price on Okta from $60.00 to $75.00 and gave the company a “buy” rating in a research note on Friday, September 7th.
  • CIBC lifted their target price on Okta from $60.00 to $80.00 and gave the company an “outperform” rating in a research note on Friday, September 7th.
  • JPMorgan Chase & Co. lifted their target price on Okta to $88.00 and gave the company an “overweight” rating in a research note on Friday, September 7th.
  • Finally, Monness Crespi & Hardt raised their target price on Okta from $62.00 to $75.00 and gave the stock a “buy” rating in a research report on Friday, September 7th.

Seventeen investment analysts have rated the stock with a buy rating; The company presently has a consensus rating of “Buy” and an average target price of $74.62.

Summary

The company continues to execute in all areas, and management expects to be breakeven on a cash flow basis. Like many fast-growing cloud stocks, Okta appears to have a bright future.

Okta has a quick ratio of 2.90, a current ratio of 2.90 and a debt-to-equity ratio of 1.08. Okta Inc has a 52-week low of $24.71 and a 52-week high of $75.49. The firm has a market capitalization of $7.68 billion, a price-to-earnings ratio of -42.04 and a beta of -0.61.






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