After a Sharp Rally, Okta Stock Pulls Back on Cautious Outlook -- Time to Buy the Dip?

Okta (NASDAQ: OKTA) has been in rally mode for much of this year, but the stock hit a speed bump when it reported its fiscal 2026 first-quarter results. Despite a 15% drop in its share price since May 27, the stock is still up 35% year to date, as of this writing.

Let's take a closer look at the cybersecurity company's most recent results and guidance to see it if can regain its momentum.

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Solid quarter but cautious outlook

In what has been a pretty common theme of late, Okta shares fell after management issued cautious guidance. With continued uncertainty around tariffs and their effect on the economy, many companies have opted to take a conservative view when it comes to their forecasts.

Okta said it saw no effect in Q1 from the macro environment, but it still thought it was prudent to stay conservative. As such, it maintained its full-year revenue forecast, calling for fiscal 2026 revenue of $2.85 billion to $2.86 billion, representing 9% to 10% growth. However, it did increase its adjusted earnings per share (EPS) outlook from a range of $3.15 to $3.20 to a new range of $3.23 to $3.28.

Management called out the strong demand for newer products, like Identity Governance, Privileged Access, and Identity Threat Protection powered by Okta AI. The company is also taking steps to address rising security risks related to AI agents and other non-human identities (NHIs). To do that, it's combining its Identity Security Posture Management tools with Privileged Access to offer a unified platform that can secure both human users and NIHs across an organization.

At the same time, Okta is confident its strategy of making sales teams more specialized will pay off over the long run. That confidence is backed by early results from parts of the business where this approach is already in place. For example, Okta shifted its U.S. small and mid-sized business (SMB) team to a "hunter-farmer" model last year where some reps focus on landing new customers while others focus on growing existing accounts. That team performed well in Q1, showing that this kind of focus can lead to better results over time.

This all led to a solid fiscal Q1, which ended April 30. Okta's revenue increased 12% year over year to $688 million. This easily topped its prior forecast for revenue of $678 million to $680 million. Subscription revenue also increased 12% to $673 million. Adjusted EPS jumped 24% year over year to $0.86, well above the $0.76 to $0.77 outlook.

Okta's net dollar retention rate -- which measures the amount of revenue spent from existing customers over the past 12 months after churn -- was 106%. Any number over 100% indicates growth. However, the metric continues to drift lower, down from 111% a year ago and 117% two years ago.

Customers with annual contract values (ACVs) above $100,000 rose 7% to 4,870, and customers with ACVs of more than $1 million jumped 20% year over year.

Okta's remaining performance obligation (RPO) backlog increased 21% to $4.08 billion, while its current RPO (cRPO) backlog, the subscription backlog expected to be recognized over the next 12 months, rose 14% to nearly $2.23 billion. Both metrics are based on signed contracts and are an indication of future revenue.

For fiscal Q2, management guided for approximately 10% revenue growth to $710 million to $712 million. Adjusted EPS should land between $0.83 and $0.84.

Image source: Getty Images.

Is it time to buy the dip?

While Okta decided to take a cautious approach to guidance, the company is seeing growing market opportunities in a world that's only becoming more complex due to AI. While this technology is helping cybersecurity companies improve their services, it's also helping cyber criminals and state-sponsored cyberthreats become more sophisticated, efficient, and difficult to detect. The company is innovating quickly to address these new threats, and AI should continue to be a major growth driver in the cybersecurity space.

With a price-to-sales (P/S) ratio of about 6.4 based on analysts' fiscal 2026 revenue estimates, Okta is still reasonably valued compared to many other leading cybersecurity stocks. As such, this is a good opportunity to pick up some shares while they take a breather from their 2025 rally.

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Geoffrey Seiler has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Okta. The Motley Fool has a disclosure policy.