Why Okta Shares Just Hit a New High

If you're unfamiliar with Okta (NASDAQ: OKTA), that's understandable -- the cloud software company works in a specific niche of the cybersecurity space, helping businesses ensure that the the people accessing their systems really are who they claim to be. So individuals aren't buying what it sells, but given the ever-rising threat that hackers pose, more and more companies are realizing that these are services they need.

In this segment of the Motley Fool Money podcast, host Chris Hill and Fool senior analyst Jason Moser discuss Okta's rapid growth across a number of metrics, the wisdom of its core design philosophy, and whether its stock is a buy.

To catch full episodes of all The Motley Fool's free podcasts, check out our podcast center. A full transcript follows the video.

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This video was recorded on May 31, 2019.

Chris Hill: Good week for Okta. First-quarter revenue for the identity management company rose 50% compared to a year ago. Shares of Okta up more than 10% on Friday, Jason, hitting a new high.

Jason Moser: Okta is a tech company. I defy you to tell me otherwise. The good news is that they are growing very quickly. I can certainly understand why. We use Okta here at The Fool. It is a very good product. You look at the total number of clients now at 6,500-plus. New additions for the quarter, 450, contributing to that top line growth of 50%. Subscription revenue up 52%. Those subscriptions are nice because they're typically multi-year contracts, which offers some visibility. This business reminds me a lot of Zoom, that video conferencing company that we talk a lot about, in that it's technology built on today's cloud infrastructure, and it really does just work.

I think the big risk for a company like this really is security. They operate on this concept of the zero-trust security model, which essentially means never trust anything and always verify. I guess in today's world, that makes sense. I think that philosophy really needs to continue. If they sacrifice that mindset for the sake of profitability, that's when I'd start being really worried about a company like this. But generally speaking, I think they're doing everything they need to be doing. It's worth noting, the stock trades at an absurd valuation, 27 times sales, it's not profitable. You do have to take that in consideration. Again, good business. I don't think I'd be buying stock today. But I would have it on the watch list for when that inevitable correction does come.

Chris Hill has no position in any of the stocks mentioned. Jason Moser has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Okta and Zoom Video Communications. The Motley Fool has a disclosure policy.