Please ensure Javascript is enabled for purposes of website accessibility
Free Article Join Over 1 Million Premium Members And Get More In-Depth Stock Guidance and Research

Okta Shares Popped Despite a Lack of Profits; Five Below Soared on a Q2 Beat

By Motley Fool Staff - Sep 18, 2018 at 10:01AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The cloud security specialist is growing its revenue rapidly, and the discount retailer's profits exceeded expectations.

In this segment from Motley Fool Money, host Chris Hill and senior analysts Andy Cross, Matt Argersinger, and Ron Gross check in on the latest numbers from digital identity management player Okta ( OKTA -2.98% ) and low-cost merchandise purveyor Five Below ( FIVE -3.14% ). They -- and the market -- like what they see.

The cloud-based service provider is growing its base of larger clients, and revenue is rising. Meanwhile, the retailer looks to be doing everything right, and its shares are trading at a high premium now because of that.

A full transcript follows the video.

This video was recorded on Sept. 7, 2018.

Chris Hill: Okta, the cloud security tech company, is not profitable, and Wall Street doesn't seem to mind at all. Shares of Okta up more than 20% on Friday after second quarter revenue came in higher than expected. No earnings, Andy, but the revenue was going in the right direction.

Andy Cross: Right. When you're growing 50% on the billing subscriptions and 57% on the revenue line ... I mean, Okta continues to show why this company that provides software solutions for companies and for enterprises, to help them manage their employee login credentials and security credentials, continues to win. The fact that stood out for me was that clients that generate more than $100,000 in annual recurring revenue was up more than 55% this quarter. That was a record.

They continue to show why they are more meaningful, why this interest in security management, simple logins, scalable solutions, continues to really resonate with the clients they're serving, clients like 20th Century Fox, Cisco, Allergan --

Ron Gross: The Motley Fool.

Cross: -- The Motley Fool, right, Ron. Their retention rates continue to be north of 120% on a dollar basis. Their headcount was up only 27% when revenues were up more than 50%. Continuing good news coming out of Okta, and it's showing in the stock price that it was up about 20% today.

Hill: Shares of discount retailer Five Below up 15% on Friday after second quarter profits came in higher than expected. Ron, same-store sales looked pretty good, too.

Gross: It's a firing-on-all-cylinders moment. This company is really getting it done. Stock's up 95% year to date on incredible growth numbers. Sales of 23%, as you said, comp sales up 2.7%. We saw a great operating income increase of almost 16%. And then, when you layer on the tax benefits that all companies are benefiting from, you have a 50% increase in earnings per share. Really incredible numbers.

Now, do you want to pay 53X for a discount retailer when you could buy Dollar General or Dollar Tree at 14-15X? Well, maybe you do, because these guys are growing much, much faster than those and there's a pretty long runway of growth ahead, with only 700 stores. They think they can get to 2,500.

Hill: Are the stores concentrated in any particular part of the country?

Gross: They're in 33 states now and expanding. California has probably the most, off the top of my head, but they're slowly getting into more and more states.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Five Below, Inc. Stock Quote
Five Below, Inc.
$192.45 (-3.14%) $-6.23
Okta Stock Quote
$214.59 (-2.98%) $-6.59

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning service.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 12/05/2021.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Our Most Popular Articles

Premium Investing Services

Invest better with the Motley Fool. Get stock recommendations, portfolio guidance, and more from the Motley Fool's premium services.