Okta Has 'Run The Playbook Flawlessly,' Canaccord Genuity Says In Upgrade

The bullish case for Okta Inc OKTA is quite simple: positive fundamental data continues to stack up, sending positive signals for the company's outlook, according to Canaccord Genuity.

The Analyst

Canaccord's Richard Davis upgraded Okta's stock rating from Hold to Buy with a price target lifted from $36 to $50.

The Thesis

Okta could be an elite "25-10-10" company: one that can sustain a 25-percent growth rate for about 10 years, and over that time period generate "an epic 10-bagger stock price return," Davis said in a Sunday note. 

The identity management company could achieve this outlook for three primary reasons, the analyst said:

• Improving fundamentals from an already strong level.
• An "ample" total addressable market with no "glass ceiling."
• Okta is many years away from reaching a point where customer acquisition costs are punitive.

Investors have reason to be concerned with relatively new IPOs like Okta, but so far the company has "run the playbook flawlessly," Davis said: conservative guidance, beat and "barely raise" and repeat. 

In the long run, investors should have confidence that Okta's combination of growth within its core competency in ID management and new products in adjacent segments will allow the company to achieve "several billion" in revenue, the analyst said.

Canaccord's $50 price target is based on a 14.6x EV/revenue multiple on 2019 estimates, which implies a multiple compression from its current 15.6x multiple on 2018E revenue.

Price Action

Okta shares were up 2.4 percent at $42.98 at the time of publication Monday. 

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Photo courtesy of Okta.