Hook / Thesis
Okta is no longer a story only about SaaS scale and recurring revenue. Over the last four quarters the business has shown a clear inflection: revenue growth in the low-teens, operating income turning positive and consistently healthy operating cash flow. Those data points suggest sales productivity is rising and the company is finally converting growth into profits. That matters for a stock that has traded between the $80s and $120s over the past year, because investors are now buying a growth business with improving unit economics rather than a perpetual loss-making growth name.
My trade idea: buy Okta around the current price (~$84), size the position modestly, use a disciplined stop and take profits in stages. The fundamental case is improving sales productivity and margin expansion; the technical and sentiment case is mean reversion toward prior trading levels as the market re-rates profitable growth.
What Okta does and why it matters
Okta is a cloud-native identity and access management company. It builds two product sets: workforce identity (employees accessing corporate systems) and customer identity (external users accessing applications). Identity is increasingly foundational to cloud security and application delivery - when companies invest in cloud and AI, identity services are a gating function. For enterprises trying to manage hybrid and multi-cloud stacks, identity sits high on the priority list because it directly protects users and data.
The market cares because identity can be sticky, subscription-driven revenue with high gross margins. If Okta converts faster and sells deeper into accounts while holding costs, revenue growth converts to meaningful free cash flow and sustainable profits - the classic profile investors pay up for.
What the numbers show - the productivity story
Look at the trailing four quarterly numbers to see the trajectory. The last four reported quarters show revenues of:
- Q3 FY2026 (period ended 10/31/2025): $742.0M
- Q2 FY2026 (period ended 07/31/2025): $728.0M
- Q1 FY2026 (period ended 04/30/2025): $688.0M
- Q3 FY2025 (period ended 10/31/2024): $665.0M
That gives a trailing four-quarter (TTM) revenue of roughly $2.82B (742 + 728 + 688 + 665 = $2,823M). Recent quarterly growth is in the ~11-13% year-over-year range (Q3 FY2026 vs Q3 FY2025 is +11.6%; Q2 FY2026 vs comparable quarter was +~12.6%), which is healthy for a larger-scale SaaS company.
Crucially, profitability and cash conversion have moved from the negatives into positive territory. Operating income in the last three quarters: Q1 FY2026 $39M, Q2 FY2026 $41M and Q3 FY2026 $23M. Net income in those quarters was $62M, $67M and $43M respectively. Operating cash flow is strong and growing: Q1 $241M, Q2 $167M, Q3 $218M. Positive operating cash flow of $218M in Q3 and $241M in Q1 indicates improved cash conversion, an objective measure of sales productivity and disciplined spend.
Balance sheet strength supports optionality. At the most recent quarter assets were $9.229B with equity of $6.893B and current assets of $3.201B against current liabilities of $2.184B; the company is not balance-sheet constrained and is generating meaningful free cash from the business.
Valuation framing
Market pricing at the time of writing: share price ~ $83.64 (last close). Using diluted average shares reported most recently (about 178.4M diluted shares in the latest quarter) implies an approximate market capitalization of $14.9B (178.4M shares * $83.64). This is an approximation because outstanding share counts fluctuate, but it gives a practical valuation anchor.
With TTM revenue of roughly $2.82B and implied market cap near $15B, Okta is trading at about 5.3x market cap / revenue (15 / 2.82 ≈ 5.3x). For a software/security company that has re-attained profitability and generates robust operating cash flow, that multiple is reasonable - not a bargain dustbowl multiple, but attractive relative to faster-growing but unprofitable peers. It also compares favorably to earlier points in the stock's multi-year trading range, when the market awarded a premium for growth without profit; today investors can buy growth with improving margins.
Note: I did not have a full enterprise value calculation in the dataset (cash and debt line items are not itemized here), so I use market cap as the straightforward public equity valuation metric and emphasize the qualitative logic: improving margins justify a higher multiple than loss-making peers; at ~5x revenue you pay for scale where growth + profitability are coming together.
Catalysts (why this trade can work)
- Continued margin expansion - if Okta maintains or improves operating income/Q by controlling sales and G&A while growing revenue, multiples should re-rate.
- Enterprise deals and upsells - deeper penetration of customer identity upsells or multi-cloud account expansions drive revenue and improve revenue per customer (sales productivity).
- Reduced legal and governance overhang - the company disclosed derivative settlement activity in filings on 08/26/2025; resolution or clarity would remove a risk premium.
- Increased index and ETF inclusion - recent ETF product expansion that includes OKTA could improve passive flows and reduce volatility at current levels.
- Consistent operating cash flow - continued strong quarterly cash from operations ($218M in Q3, $241M in Q1) provides optionality for buybacks, M&A or further margin investment.
Actionable trade plan (entry / stops / targets)
Trade direction: Long (swing).
Time horizon: swing / position - 6 to 12 months.
Risk level: medium.
Entry: $82 - $86 (current price area around $84). Consider a two-tranche entry: 50% near $84, add 50% if price pushes to $78 - $80 on pullback.
Stop-loss: $72 (roughly 14% below the $84 mid-entry). Tighten to breakeven after +20% move.
Target 1: $100 (about +20% from mid-entry) - take 40% of position off.
Target 2: $125 (about +50% from mid-entry) - take another 40% off and trail the remaining 20% with a 20% trailing stop.
Position sizing: keep any single position to a small percentage of portfolio (e.g., 2-4%) given policy and idiosyncratic risk.
Risks and counterarguments
No trade is without risk. Here are the main downside scenarios and a representative counterargument:
- Competition and product displacement - Okta faces strong competition from large platform vendors and security specialists who can bundle identity into broader offerings. If competitors undercut pricing or win at scale, Okta could face churn or pressure on average selling price.
- Macro IT spending slowdown - enterprise IT budgets are cyclical. A slowdown in tech spend could delay deals and hurt revenue growth, which would expose the valuation to multiple compression.
- Execution / margin pressure - the move to profitability depends on maintaining cost discipline while investing in product. If Okta over-invests in R&D or sales to chase growth, operating income could reverse.
- Legal and governance overhangs - prior derivative matters and reported institutional exits can lead to headline-driven volatility and incremental costs.
- Valuation is not cheap if growth stalls - ~5x revenue trades on the expectation of continued growth plus margin expansion. If growth decelerates to single digits, the valuation will look expensive.
Counterargument
Someone might argue: Okta's growth is only mid-teens, not premium, and large incumbents will win identity at scale — so buy other security names instead. That's valid. The counter to that is Okta's demonstrated ability over the last year to convert similar growth into positive operating income and strong operating cash flow. You're not just paying for growth here; you're paying for growth that is now monetized. The trade is a bet that margin trajectory continues, not merely that revenue grows.
What would change my mind
I would change my stance if any of the following occur:
- Revenue growth drops materially below 5% year-over-year for two consecutive quarters while operating expenses remain elevated.
- Operating cash flow falls sharply (two consecutive quarters of negative operating cash flow) indicating poor cash conversion.
- Material customer churn spikes or a major customer announces migration away from Okta's platform.
Conclusion and final read
Okta's recent quarters show a practical story: growth at scale plus improving sales productivity and margins. The company generated $218M of operating cash flow in the most recent quarter and reported positive operating income and net income figures, which is a meaningful behavioral shift for investors that previously had to accept recurring losses. At an implied market cap in the neighborhood of $15B and a TTM revenue base near $2.82B, the stock offers a reasonable entry for a medium-risk long trade focused on margin continuation and enterprise demand for identity services.
Trade the name with a disciplined stop and staged targets: buy near $82-$86, stop at $72, target $100 then $125. Keep position sizing prudent because execution risk and macro cycles can still create sharp drawdowns. If Okta maintains the trend of improving sales productivity and cash generation, this trade should work; if those lines break, the stop will protect capital and the thesis should be revisited.
Disclosure: This is not financial advice. The plan above is a trade idea for educational purposes; confirm prices, your risk tolerance, and tax situation before trading.