Why Okta Stock Got Trounced on Tuesday

What happened

Tuesday wasn’t a fine day to be an Okta (OKTA -6.14%) shareholder. The identity-management specialist’s stock took a more than 6% hit in the wake of a pair of analysts’ price target cuts.

So what

It’s been a rather busy September so far for Okta. It kicked off the month by reporting its second-quarter earnings, and although the specialty tech company beat on both the top and bottom lines, investors were spooked when it admitted that it was having difficulties with integrating Auth0, the peer it bought in May 2021. Folks were also disheartened by management’s admission that its goal of reaching $4 billion in revenue by fiscal 2026 was being reevaluated.

These developments were surely on the minds of analysts Patrick Colville of Deutsche Bank (DB -0.48%) and Shebly Seyarfi of FBN Securities, both of whom notably reduced their price targets on Okta stock Tuesday.

Colville now feels the company is worth $90 per share, down from his previous $130 target, while Seyarfi’s new price tag is $110, down from $160. Despite the slices, both men are maintaining the equivalents of buy recommendations on Okta shares.

Now what

The main reasons why the analysts reduced their price targets weren’t immediately apparent. While investors overreacted to the latest Okta developments, they were nevertheless right to be more cautious about the company. Revenue growth is vitally important for young tech enterprises, and if there’s a chance they won’t meet expectations, they can be punished severely by the market.

But Okta is an effective operator in a niche that is sure to get larger over time, so this pullback may be a chance for investors to snap its stock up at a relative discount.

Eric Volkman 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.