OKTA rallies 10% before earnings – Does YIG see value or hype?

Okta (NASDAQ: OKTA), a cloud software company for user identification, is causing optimism to erupt within investors ahead of this Thursday’s earnings. Considering all tech stocks are experiencing support from the raging bull, Okta’s bullish expectations should be no surprise. Today’s article will provide our readers with an objective breakdown of the earnings expectations and whether YIG sees value.

1. Why is Okta up before earnings - should you be bullish or bearish? 
2. Does YIG see value in an Okta earnings investment?

Wall Street’s take on Okta’s earning – should you be bearish or bullish?

The general sentiment amongst Wall Street is bullish. Zacks Consensus estimate expects Okta to post a quarterly loss of $0.02 per share and $186.44 million in revenue, which is +60% and +32.7% YOY, respectively.  Zacks estimate projects OKTA’s FY20 earnings and revenue to come in at -$0.19 and $777.23 million. If this analysis holds up, OKTA would be posting a 38.71% and 32.62% gain in earnings and revenue for the FY2020. Moreover, Okta’s EPS estimate above has not changed for the last 30 days. The lack of estimated revisions indicates that the analysts covering Okta have not received any sensitive information that would cause them to change their bullish forecasts.

Don’t be completely sold on the Bullish outlook

However, it is worth mentioning that Okta is branded with a Zacks Rank of 4 (Strong Sell). Allowing investors to draw the conclusion that Okta might be reaching an overvalued territory. In which, we could see a slight correction post-earnings as investors cash in on the recent rally. Also, YIG would like to point out that monitoring Okta’s earnings EPS revisions until Thursday is crucial. Because blindly expecting the estimates to remain unchanged could result in a capital loss.

Does YIG see value in an Okta earnings investment?

Before I begin, I am obliged to remind our viewers that this is not advice but rather investment commentary from extensive research 

Short answer: Riding the earnings anticipation up to the 27th holds the most potential (opinion not advice) 

Investing and hoping the stock will shoot up on earnings can be just as risky as betting on horse races. Because leading up to earnings, all we have are expectations and not certainties. In the case of Okta, the sentiment is bullish because of the tech stocks immunity to COVID-19. Not to mention that cybersecurity is a megatrend that will only continue to grow. Thus, mounting the case that Okta’s earnings will please investors and trigger a buying spree. However, the margin for a disappointing earnings still exists.

Despite the negative possibility, humans are wishful thinkers. Thus, we should see investor optimism drive up Okta before earnings. However, YIG would like to point out that just because the stock rises before earnings does not guarantee strong financials. In saying that, investing in the Okta hype could be a smart strategy. Because it limits your exposure to the downside and allows you to capitalise off irrational buying before earnings.

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The information above is not financial advice. Youth Investment Group has no liability for personal financial interests or investment decisions. You should make your own investment decisions based upon your own research and what you believe is best for you.

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Written by Patrick McLoughlin, Senior Manager of YIG.

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