Personal Finance

Why Okta Stock Dropped 12% This Morning

Bull standing on blocks as bear knocks them down

What happened

Cloud-based identity confirmation software service Okta (NASDAQ: OKTA) saw its stock rocked more than 12% in early Monday trading, before closing the day down "only" 8%.

Part of the reason may have been that investors got a case of nerves ahead of Okta's Q4 earnings report, which is due out on Thursday . But Wall Street compounded matters when, this morning, analysts at SunTrust announced they were downgrading Okta stock to "hold" ahead of tha t earnings report.

Bull standing on blocks as bear knocks them down

SunTrust makes bull and bear arguments for Okta, but ultimately downgrades. Image source: Getty Images.

SunTrust makes bull and bear arguments for Okta, but ultimately downgrades. Image source: Getty Images.

So what

Okta shares have more than doubled over the past year -- up 122%, in fact, even including today's pullback. SunTrust cited the risk of losing some of these "big gains" as reason for caution ahead o f earnings and warned that after rising so much, the risk-reward ratio from buying at today's prices is less favorable that it was back when Okta cost merely half as much.

Now what

Of course, one downgrade from one analyst doesn't mean Okta's run is done. Indeed, even as it downgraded the shares, SunTrust raised its price target on Okta stock to $90 -- which is 13% more than the stock costs today. And in a note covered by TheFly.com , SunTrust predicted Okta would "maintain impressive momentum" going forward, growing both revenue and billings at rates in excess of 40% -- twice the 20% long-term earnings growth rate that most analysts predict for the stock.

If that's the argument that persuaded investors to sell the stock, I wonder what SunTrust would have had to say to convince people to buy it.

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Rich Smith owns shares of Okta. The Motley Fool owns shares of and recommends Okta. The Motley Fool has a disclosure policy .

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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