Cybersecurity specialist Okta (OKTA 1.25%) took a tumble Wednesday, falling 14.6% through noon ET. The crazy thing is, Okta's news looked pretty good.
Wall Street anticipated Okta would report fiscal Q1 2026 profits of $0.77 per share, adjusted for one-time items, on sales of $680.1 million. In fact, Okta said it earned $0.86 per share on sales of $688 million.
Image source: Getty Images.
Okta's Q1 earnings
What's not to like about that? Well, there are a few caveats and quibbles. Revenue grew a respectable 12%, which is good. However, while Okta beat on "adjusted" earnings, its actual earnings, as calculated according to generally accepted accounting principles (GAAP), were a lot less than the adjusted figure -- just $0.35 per share.
Still, that number was a lot better than last year's Q1, when Okta lost $0.24 per share.
What's more, Okta reported positive free cash flow of $238 million for the quarter, roughly four times its reported "profit," and up 11% year over year, in line with revenue growth.
Is Okta stock a sell?
Turning to guidance, Okta told investors its sales will grow about 10% in Q2, and 9% to 10% for fiscal 2026 as a whole. The company didn't give GAAP earnings numbers, couching guidance in "adjusted" terms again. Still, the company's predictions of an $0.83 or $0.84 profit in Q2, and anywhere from $3.23 to $3.28 per share for the year, were all comfortably ahead of analyst estimates.
So why are investors selling Okta stock today?
I can only imagine it's the valuation that's spooking them. Priced at 24.5 times trailing free cash flow, Okta stock looks a bit rich for low-teens sales and FCF growth. And growth is slowing, too. It's not a great look for a supposed growth stock.
