Okta (OKTA -1.22%) stock is clawing its way back into Wall Street's good graces. The cybersecurity specialist had mostly good news for investors in its recent earnings update on both the top and bottom lines. Shares jumped in response to Okta's brightening short-term outlook.

Let's take a closer look at whether the stock's early 2023 rally might just be getting started.

Sales growth

Okta's fourth-quarter update in early March comfortably beat Wall Street's expectations. While management had predicted sales growth of between 27% and 28%, revenue expanded at a 33% rate through late January.

Despite slowing spending in many parts of the tech world, companies didn't skimp on cybersecurity outlays. "Identity remains a top priority for organizations around the world," CEO Todd McKinnon said in a press release. Okta's success also reflects progress at integrating the Auth0 business, which had pressured sales through most of 2022 .

The company also outperformed around earnings. Sure, Okta remains unprofitable. Operating loss landed at a painful $812 million for the full fiscal year, or 44% of revenue, compared to a $768 million loss, or 59% of revenue, a year earlier. But Okta soared past management's early November earnings outlook. On a non-GAAP basis, operating loss shrank to 1% of revenue.

Okta's cash-flow trends imply gathering financial strength, too, thanks to cost cuts, strong sales growth, and rising average contract spending. Operating cash flow is $86 million for the year, and free cash flow is positive, too.

A brighter outlook

Wall Street was thrilled to hear that management expects a return to non-GAAP profitability in this fiscal year. After losing $10 million in fiscal 2023, Okta is targeting gains of between $136 million and $145 million. Sales growth will likely slow to around 16% from 43% last year. But Okta still has a good shot at expanding its revenue footprint to over $2 billion.

OKTA Net Income (TTM) Chart

OKTA Net Income (TTM) data by YCharts.

Looking further out, executives see room to boost the business over time, especially since Okta's platform now features a complete package of workforce and customer-identity management services. "We're more excited than ever to advance our leadership position in a massive market," McKinnon said.

Not too late

The latest results confirm a few key parts of the bullish investing thesis for this stock, including its strong market-share position in a growing industry. It's also encouraging to see Okta take a big step toward profitability even in a challenging sales environment.

The big question is how long investors will have to wait before seeing sustainably positive net income after two consecutive years of big losses. If Okta can maintain the strong sales and cash-flow trends that inventors saw in late fiscal 2023, then there's plenty of room for the stock to deliver solid returns. Shares are still down by over 50% since early 2022, after all. In that time, Okta's valuation has come down from a price-to-sales (P/S) ratio of over 18 to around 6.5 today.

A recession would likely push the valuation even lower as it would extend the timetable for Okta's return to profitability. But investors willing to take that risk might consider this cybersecurity stock a compelling value today.