• If you are wondering whether Okta's current share price lines up with its underlying worth, this article will help you unpack what the market might be pricing in today.
• Okta's share price closed at US$89.55, with returns of 2.6% over the last year, 7.1% year to date, a 30.3% gain over three years, and a 66.1% decline over five years, so the stock has treated different time frames very differently.
• Recent headlines around Okta have focused on its role in identity and access management and how the company is positioned as organizations pay closer attention to security and user authentication. These themes often influence how investors think about risk and growth potential, which can feed into short term price moves.
• On our valuation checks, Okta scores 2 out of 6 for being undervalued, as shown in its valuation score. We will walk through what different valuation methods say about that figure and then finish with a more complete way to think about what the stock might be worth.

Okta scores just 2/6 on our valuation checks. See what other red flags we found in the full valuation breakdown.

Approach 1: Okta Discounted Cash Flow (DCF) Analysis

A Discounted Cash Flow model takes estimates of the cash a business could generate in the future and discounts those back to today, aiming to convert a stream of projected cash flows into a single present value per share.

For Okta, the model uses last twelve month Free Cash Flow of about $888.3 million as a starting point and projects Free Cash Flow out over the next decade using analyst inputs for the earlier years and extrapolated figures after that. By 2030, the projection used in this model is $1.32b of Free Cash Flow, with intermediate years such as 2026 to 2029 sitting between those two endpoints.

All of these future cash flows are discounted back using a 2 Stage Free Cash Flow to Equity framework, which produces an estimated intrinsic value of about $122.58 per share.

Compared with the recent share price of $89.55, this implies Okta trades at roughly a 26.9% discount to that DCF estimate. On this measure, the shares screen as undervalued rather than fully priced.

Result: UNDERVALUED

Our Discounted Cash Flow (DCF) analysis suggests Okta is undervalued by 26.9%. Track this in your watchlist or portfolio, or discover 865 more undervalued stocks based on cash flows.

Approach 2: Okta Price vs Earnings

For profitable companies, the P/E ratio is a useful way to relate what you pay per share to the earnings the business is generating. It gives you a quick sense of how many dollars of price the market is assigning to each dollar of current earnings.

What counts as a “normal” P/E depends a lot on expectations and risk. Higher expected earnings growth or lower perceived risk can justify a higher P/E, while lower growth or higher risk usually point to a lower P/E being more appropriate.

Okta is currently trading on a P/E of 81.39x. That compares with an IT industry average P/E of about 28.87x and a peer average of 30.20x, so the market is currently paying a higher multiple for Okta than for many of its sector peers.

Simply Wall St’s Fair Ratio for Okta is 35.75x. This is a proprietary estimate of what Okta’s P/E might be, given factors such as its earnings growth profile, industry, profit margins, market cap and risk characteristics. Because it blends these elements together, the Fair Ratio can be a more tailored benchmark than a simple comparison with industry or peer averages.

Comparing the current P/E of 81.39x with the Fair Ratio of 35.75x suggests the shares are pricing in more optimism than this framework would imply.

Result: OVERVALUED

P/E ratios tell one story, but what if the real opportunity lies elsewhere? Discover 1440 companies where insiders are betting big on explosive growth.

Upgrade Your Decision Making: Choose your Okta Narrative

Earlier we mentioned that there is an even better way to understand valuation, so let us introduce you to Narratives, a simple way for you to connect your own story about Okta with a set of forecasts for revenue, earnings and margins, and then translate that into a fair value that you can compare with the current share price to help decide whether the stock looks attractive or stretched.

On Simply Wall St, Narratives sit inside the Community page and let you say, in effect, “Here is how I think Okta’s business will play out,” then automatically turn that view into a financial model and fair value, which is then kept up to date as new earnings, news or guidance arrive instead of staying frozen at a single point in time.

For Okta, one published Narrative currently anchors on a fair value of about US$147.87 per share while another uses US$113.02. This shows how two investors can look at the same company, plug in different expectations, and end up with different but clearly quantified views that they can track against the live market price over time.

Do you think there's more to the story for Okta? Head over to our Community to see what others are saying!

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.