Shares of Okta Inc. experienced a modest gain on Monday as the identity-management software company received a double upgrade from Goldman Sachs analyst Gabriela Borges. This positive assessment comes after the stock was downgraded six months ago.

Okta's shares rose 1.2% to $72.26 following the upgrade, as Borges changed her rating from a sell to a buy. She now predicts a favorable risk/reward ratio, with the expectation that subscription revenue will reach its lowest point in the second half of the year.

Borges made this upgrade based on several factors. She sees a clear path to outperformance over the next 12 months, driven by the recognition of contracted subscription revenue and a projected acceleration in annual recurring revenue (ARR) growth to 15% to 20%. ARR is an important metric for software-as-a-service companies as it indicates expected revenue based on subscriptions.

Additionally, Borges acknowledged that Okta is navigating challenges related to its acquisition and integration of identity-platform Auth0. The integration process has posed difficulties due to Auth0's more direct-to-user sales approach compared to Okta's corporate focus.

Despite the competition from Microsoft, which may continue to impact Okta's stock, Borges remains optimistic. In her bull case scenario, she discounts Okta's valuation by approximately 30% relative to its peers.

Overall, this double upgrade and the positive outlook indicate a bright future for Okta Inc. as it moves forward with its growth strategy and tackles challenges head-on.

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According to Borges, Okta's performance has been affected since it was added to Goldman's sell list on Feb. 14. While the Nasdaq Composite COMP and the WisdomTree Cloud Computing Fund WCLD experienced gains of 14% and 3% respectively, Okta's stock has dropped by about 8%. However, the share price of Okta has increased by nearly 6% year-to-date, whereas the Nasdaq has risen by 32% and the WCLD fund has grown by 25%.

Out of the 42 analysts covering Okta, approximately 26 have rated the stock as a buy, while 13 have maintained hold ratings and three have issued sell ratings. The average price target for Okta, according to FactSet data, is $93.24.

Okta is expected to release its earnings report on Aug. 30, after the close of markets.

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Renowned investor George Soros has disclosed that he has increased his investment in Okta, as well as other cybersecurity stocks such as Cloudflare Inc. and Rapid7 Inc. Additionally, Soros has taken new positions in Nvidia Corp. and Advanced Micro Devices Inc.

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During the last quarter, Okta's CEO, Todd McKinnon, expressed his anticipation of a challenging business environment ahead, even with an improved annual forecast. He mentioned concerns about the potential worsening of macroeconomic conditions. In November, Okta had projected profitability for the entirety of 2023.

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