Needham Shifts To Neutral On Okta, But Continues To Have Positive Long-Term View

Identity access name Okta Inc (NASDAQ: OKTA) is a company that investors can "love," but the same can't be said for the stock, according to Needham.

The Analyst

Needham's Alex Henderson downgraded Okta from Buy to Hold with no assigned price target.

The Thesis

Okta's status as a "clear leader" in identity access remains unchanged despite the elimination of Needham's bullish stance on the stock, Henderson said in the Tuesday downgrade note. (See the analyst's track record here.)

The company's guidance for a 50-percent growth rate in the first quarter of 2019 after growing 60 percent in the fourth quarter creates the risk of "disappointing inflated expectations," the analyst said. 

Even if Okta continues to deliver beat-and-raise quarters, a bullish stance on the stock would be difficult to maintain, Henderson said. The stock is trading at 21.7x EV/S on 2018 estimates and 16.5x on 2019 estimates. By comparison, similar SaaS names trade at average multiple of 11.8x EV/S on 2018 and 9.4x on 2019, so it's "hard to recommend" buying Okta's stock at current prices, the analyst said. 

Despite plenty of white space ahead for Okta to grow, Needham said the company it views as the leading next-generation pure cloud player isn't a Buy at this time. 

Price Action

Okta shares were down 4.83 percent at $54.59 before the close Tuesday. 

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