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As long as you’re using a very small portion of your trading account, respecting your stop-losses, and able to handle the risks involved, it might be okay to bet on a lesser-known investment like Okta (NASDAQ:OKTA), but Okta stock comes with a lot of baggage.
I’m not against taking on some riskier investments, and Okta certainly fits into that category. The company specializes in security solutions and identity protection with a cloud-storage angle; this sounds promising on the surface, but a deeper dive will reveal some potential issues with OKTA stock.
What Scares Me About OKTA Stock
You may have noticed that the stock market is currently undergoing a rotation from momentum stocks (the “momo” stocks, as some folks call them) into value stocks. I’ve heard a few commentators claim that that’s a signal of a weakening bull market, but that’s debatable.
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In any case, the momo-to-value rotation tends to hit technology stocks the hardest, and especially the high flyers that have experienced a steep ascent in price. Okta Inc. stock indubitably fits that description: it’s a cloud-focused company steeped in technology, and OKTA stock’s price action looks like a meteorite that went too close to the sun.
It’s a rather unsettling arc, somewhat reminiscent of what traders previously witnessed with other cloud-centered stocks like Twilio (NYSE:TWLO) and Slack (NYSE:WORK) but more pronounced. Put it this way: the movement from OKTA’s $17 IPO price to its all-time high of $141.85, and then the retracement back to $103, isn’t exactly what I look for in a potential investment.
Too far, too fast. That’s my immediate thought when I look at Okta Inc. stock, and even in my most risk-on moods, I’m not one to catch a falling knife. Besides, with the broader market moving away from the “momos” and seeking shelter in older, safer companies, I’ll be glad to watch OKTA but I sure as heck ain’t gonna chase it.
When Bad News Is Good News
Turning our attention to earnings, some folks might point to the apparently great results from Okta’s second-quarter earnings announcement. Evidently, the bar was set so low that an earnings beat was almost inevitable; indeed, the market cheered as the announced loss of 5 cents per share beat analysts’ expectations.
Even with that, I still see a loss and “not as bad as we thought it would be” simply doesn’t cut it for me. In a similar vein, Okta reported operating losses totaling 31% of sales, which is an improvement over the 41%-of-sales operating losses from last year, but is still not confidence-inspiring if you ask me.