Okta (OKTA) is back in focus after introducing new Agent Discovery tools aimed at spotting unsanctioned AI agents inside corporate environments, which puts AI security and identity governance at the center of the investment conversation.

Despite the new AI focused security tools and an expanded relationship with the PGA of America, Okta’s 1 year total shareholder return of 10.08% decline contrasts with an 8.95% 90 day share price return and a 20.91% 3 year total shareholder return, suggesting improving momentum after a much weaker 5 year total shareholder return of 67.75% decline.

If this AI security push has your attention, it could be a good moment to see what else is out there in AI related names. You can use our 58 profitable AI stocks that aren't just burning cash as a starting list of ideas.

With Okta trading at US$87.26 and screens flagging an intrinsic value gap of roughly 36%, plus a sizeable discount to analyst targets, the key question is whether this signals a genuine mispricing or whether the market is already banking on future growth.

Most Popular Narrative: 41% Undervalued

Tokyo’s widely followed narrative on Okta pins fair value at $147.87 versus the last close at $87.26, anchoring a clear valuation gap that many investors are now scrutinizing.

Okta has a solid foundation: a technically brilliant solution, a strong market position and a recurring revenue model. But to be truly successful, Todd McKinnon needs to take strategic risks and further develop the business model. It is not enough to have a better solution than the competition. The key is to find a business model that solves a “problem” for customers so elegantly that they are willing to pay for it, and profitably. CrowdStrike and Okta offer exciting opportunities in this context. A more intensive collaboration or even a merger could strengthen both companies and create a market giant that could have a lasting impact on the security market. The next step is the most difficult, but also the most important. Todd McKinnon and Okta have the opportunity to become a sustainable and profitable company. It is now a matter of seizing this opportunity.

Curious how this narrative gets from today’s share price to that higher fair value? It leans heavily on stronger margins, a richer profit profile and a future earnings multiple that assumes Okta matures into a much more efficient identity platform. The full story sets out those assumptions in plain numbers and joins them to a clear view on profitability.

Result: Fair Value of $147.87 (UNDERVALUED)

However, this depends on Okta turning recent revenue and net income growth into durable profitability while also avoiding further pressure on retention trends and identity security spend.

Another View: Earnings Multiple Flips the Story

Tokyo’s fair value narrative and our model-based fair value both point to Okta looking cheap on cash flows, yet the current P/E ratio of 79.3x tells a very different story. That is far above the IT industry average of 23.2x, the peer average of 31.3x, and even the 35.1x fair ratio our models suggest the market could move towards. This raises a simple question: is the discount real, or is the earnings multiple already baking in a lot of hope?

Next Steps

Given the mixed signals on valuation and growth expectations, it helps to move quickly and test the story against your own comfort with the numbers. To see what the market is currently optimistic about, take a look at our breakdown of 3 key rewards.

Looking for more investment ideas?

If Okta has sparked your interest, do not stop here. Use this momentum to scan for other opportunities that fit your style before the market moves on.

• Target potential value plays by reviewing our 55 high quality undervalued stocks that line up strong fundamentals with prices that may not fully reflect them yet.
• Strengthen your income focus by checking out 13 dividend fortresses, built around companies offering 5%+ yields with an emphasis on resilience.
• Protect your downside by working through the 82 resilient stocks with low risk scores, which highlights businesses with lower risk profiles so surprises are less likely to catch you off guard.

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.