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“Ominous day” coming to stocks… (From Trend Labs)

Okta logo over a digital circuit and upward arrow symbolizing stronger cybersecurity demand and improved FY2026 outlook.

In Brief

  • Okta delivered a beat-and-raise Q3, reaffirming strong momentum with positive Q4 guidance and expanding margins.
  • Despite a dip in stock price, fundamentals remain strong, with significant growth in subscriptions, RPO, and cash flow.
  • Analysts remain lukewarm, but valuation appears attractive compared to cybersecurity peers, implying long-term upside.

 

Okta’s (NASDAQ: OKTA) stock price dipped following its fiscal Q3 2026 earnings release and guidance update, which was only an excuse to sell. 

Why? Because the company “failed” to provide a fiscal 2027 update. But what business typically provides its subsequent fiscal year guidance with its Q3 release? The average company, excluding its long-term targets, typically provides guidance for its subsequent fiscal year based on the prior fiscal year’s Q4 results, which, in this case, are still forthcoming. 

The key takeaway for investors is the beat-and-raise quarter, favorable Q4 guidance, and business momentum that is likely to carry into FY2027 and beyond.

Okta’s identity-based cybersecurity integrates with other cybersecurity products, is central to comprehensive, enterprise-level security, and is in demand. Among the details to note is its AI capability. Okta governs ID across the enterprise, including AI agents, clients, and customers. 

Okta executives have not provided a long-term forecast, but they have indicated a desire to balance growth with margin expansion. As it stands, the company is on track for modest, double-digit growth in FY2026, wider margins, and strong cash flow. Q4 guidance reaffirms the outlook, including improved revenue and earnings, indicating that Q3 strengths will likely persist and carry into FY2027 as AI adoption advances globally. 

OKTA stock chart that shows how the stock slipped in early trading following

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Okta’s Strong Quarter Underpins Market Support

Okta’s market has struggled to regain traction since 2023, but has clear support within its trading range.

The Q3 results are solid, underpinning market sentiment, and are unlikely to enable a significant stock price pullback now or in 2026, which is the company’s fiscal year 2027. The adjusted earnings per share (EPS) of 82 cents beat the 76-cent analyst consensus, and revenue grew by 11.6%, outpacing MarketBeat’s reported consensus by more than 150 basis points. Okta reported strength in subscriptions, new clients, and penetration of services.

Subscriptions grew by 11%, driving a 13% increase in the current remaining performance obligation (cRPO) and a 17% increase in the remaining performance obligation (RPO), indicating strength will continue for the foreseeable future. 

The company widened its margins by triple-digit basis points in all comparisons. Critical details include a 25% increase in net income, a 21% increase in operating cash flow, and a 28.6% increase in free cash flow, all of which outpaced the top line and are expected to remain strong in the upcoming quarter. 

Guidance provided no reason for the market to sell off. The company provided strong Q4 estimates and increased its full-year guidance for fiscal 2026, with both figures exceeding consensus targets. The company expects revenue to grow by 10% year-over-year, adjusted EPS to be approximately 84 cents, and for its free cash flow margin to widen. 

Analysts Are Unimpressed, May Cap Market Until Early 2026

Analyst response to the news is tepid, aiding the initial downdraft in stock prices caused by the release.

Within the first 12 hous of the release, two analysts issued price target reductions, but even those reductions reflect a 10% potential upside upside. Since then, analyst sentiment is firming and includes some upgrades. The price target now is a favorable $112, reflecting a nearly 30% potential upside. 

While the technical outlook is not robust, the market is trading within a range with limited downside, and long-term forecasts suggest solid gains for patient investors. The stock trades at a value today, given its growth outlook and earnings quality, and its growth outlook implies a deep value for buy-and-hold investors.

Assuming the company maintains its double-digit earnings growth, it is trading at approximately 16x its 2030 consensus estimate, suggesting it could increase by 50% to 100% over the coming years. It is worth nothing that cybersecurity leaders such as Palo Alto Networks (NASDAQ: PANW), Zscaler (NASDAQ: ZS), and CrowdStrike (NASDAQ: CRWD) trade at significantly higher valuations. 

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