OKTA Stock vs MDB Stock: Is One Undervalued?

Both MongoDB and Okta’s share prices have declined this year. However, based on its fundamentals, one of them could be better-priced.

MongoDB [MDB] is a cloud-based relational database management software business. Its eponymous product uses flexible document types to offer businesses greater flexibility about the data they can store.

Okta [OKTA] is a cloud-based password management service. Like MongoDB, it offers a cloud-hosted B2C service. Thus, while their respective products are very different, both have a similar business model and target market.

These two cloud-based enterprise software stocks are also similarly sized and, over the next 12 months, are expected to see similar revenue growth rates. However, the two have surprisingly different valuations compared to their revenue and earnings.

Which could be considered the better long-term investment — OKTA stock or MDB stock?

How Have Earnings Impacted OKTA and MDB’s Share Price?

Okta’s share price has declined 21.57% year-to-date through September 10, and 18.75% over the past 12 months.

OKTA stock fell 17.64% on August 29 following Q2 results, despite beating expectations on earnings and revenue, as its Q3 guidance was moderated thanks to what CFO Brett Tighe on the earnings call called a “challenging macro environment”.

MongoDB’s Q2 Earns a Share Price Bounce

MongoDB’s stock, meanwhile, has fallen 28.7% in the year to date and 22.74% over the past 12 months. Its shares, however, were boosted 18.34% on August 30, following Q2 earnings, as greater-than-anticipated cloud consumption enabled it to raise its guidance.

With investors seemingly more sensitive to the long-term outlook for each company, rather than their performance in the here-and-now, it is worth considering the valuations of both companies compared to their recent sales and forward projections.

Comparing OKTA Stock and MDB Stock

Source: Yahoo Finance
 
Both companies are expected to grow their revenue at a roughly similar rate in 2025, and while MongoDB has the larger market cap, both are towards the lower end of the large-cap stock range.
 
The notable difference between the two is that MongoDB’s stock is much more expensive, relative to its sales, than Okta’s.
 
This is especially true when looking at their respective earnings. Okta has a P/E ratio of 29.67 compared to MongoDB’s 93.03, while Okta has a forward P/E ratio of 39.67 compared to MongoDB’s 120.48.

This suggests that, at their respective current valuations, Okta could be undervalued compared to MongoDB based on its sales and earnings, both reported and expected.

There is, of course, no guarantee that analyst expectations regarding earnings will be accurate.

OKTA Stock and MDB Stock: The Investment Case

The Case for Okta

Not only is Okta seemingly undervalued compared to MongoDB, it looks set to grow earnings at a faster rate over the next four years.

Between 2023 and 2027, FactSet analysts expect Okta’s full year EPS to increase from $1.60 to $3.94, implying a CAGR of 25.27%. During the same period, MongoDB’s EPS is expected to rise from $3.33 to $4.51, implying a CAGR of just 7.88%.

Analysts, on the whole, seem to think that Okta’s share price will gain more than MongoDB’s over the next 12 months.

Its median price target among analysts polled by LSEG is $106.05, implying 49.4% gains over the next 12 months. The equivalent figure for MongoDB, $334.86, implies 14.9% gains during the same period. The most pessimistic estimate also sees MongoDB’s share price falling 26.2%, while Okta’s equivalent sees its stock gaining 5.6%.

The Case for MongoDB

However, investors may not want to dismiss MongoDB out of hand. Its seeming overvaluation by the market could reflect a thesis that it has a larger potential market to expand into over the long term than Okta.
 
The operational database management market in which MongoDB operates was worth $51.9bn in 2023, according to Market Research Future, and is expected to grow to $86.9bn by 2032 — adding $35bn of value during that time.
 
Okta’s password manager market, by contrast, was worth $2.35bn in 2023 and is expected to reach $9.14bn by 2032, according to Fortune Business Insights. While this represents a faster rate of growth in percentage terms, the smaller size of the market means that there is less than $7bn of additional value to be created during that period.
 
Okta may also face stiffer competition than MongoDB for share in these growing markets. While not indicative in its own right, it is noteworthy that Market Research Future listed MongoDB as one of the key players in the operational database management market, but Fortune Business Insights’ report into password managers did not do the same for Okta.
 
This line of thinking could inform the fact that MongoDB is expected to grow revenue faster than Okta over the next four years. Okta’s annual revenue is expected to rise from $2.26bn in 2023 to $3.53bn in 2027, implying a 11.79% CAGR, whereas MongoDB’s is expected to increase at a CAGR of 16.55% from $1.68bn to $3.10bn.
 
So while Okta might be set for superior earnings growth over the next four years, the longer-term outlook is more equivocal. There is a chance that its smaller market — and its relatively smaller status within it — could mean its growth curve flattens before MongoDB’s.
 
This could explain the seemingly extreme bullishness at the high end of analyst price targets for MongoDB. While its median target implies slower share price gains than Okta, the high target of $700 implies 140.1% gains, substantially more than the
equivalent figure of 97.2% for Okta.

Conclusion

With both Okta and MongoDB’s share prices having registered falls this year, there is a case to be made for investing in either stock. However, investors should note the sensitivity of the market to slight nuances of guidance and performance.
 
There is considerable risk involved with either stock, and investors should conduct thorough independent research before reaching any investment decision.

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