Earnings

A Side-by-side Analysis of Autodesk, Inc. (ADSK) and Okta, Inc. (OKTA)

Autodesk, Inc. (NASDAQ:ADSK) shares are up more than 44.79% this year and recently decreased -2.24% or -$2.45 to settle at $107.16. Okta, Inc. (NASDAQ:OKTA), on the other hand, is up 15.53% year to date as of 12/08/2017. It currently trades at $27.16 and has returned -5.43% during the past week.

Autodesk, Inc. (NASDAQ:ADSK) and Okta, Inc. (NASDAQ:OKTA) are the two most active stocks in the Technical & System Software industry based on today’s trading volumes. To determine if one is a better investment than the other, we will compare the two companies’ growth, profitability, risk, return, and valuation characteristics, as well as their analyst ratings and sentiment signals.

Growth

One of the key things investors look for in a company is the ability to grow earnings at a high compound rate over time. Analysts expect ADSK to grow earnings at a 26.00% annual rate over the next 5 years.



Profitability and Returns

Growth isn’t very attractive to investors if companies are sacrificing profitability and shareholder returns to achieve that growth. We will use Return on Investment (ROI), which control for differences in capital structure between the two companies, to measure profitability and return. ADSK’s ROI is -25.10% while OKTA has a ROI of 34.30%. The interpretation is that OKTA’s business generates a higher return on investment than ADSK’s.

Cash Flow 




The value of a stock is simply the present value of its future free cash flows. ADSK’s free cash flow (“FCF”) per share for the trailing twelve months was -0.29. Comparatively, OKTA’s free cash flow per share was -0.10. On a percent-of-sales basis, ADSK’s free cash flow was -3.15% while OKTA converted -0.01% of its revenues into cash flow. This means that, for a given level of sales, OKTA is able to generate more free cash flow for investors.

Liquidity and Financial Risk

Liquidity and leverage ratios are important because they reveal the financial health of a company. ADSK has a current ratio of 1.10 compared to 1.70 for OKTA. This means that OKTA can more easily cover its most immediate liabilities over the next twelve months. ADSK’s debt-to-equity ratio is 14.78 versus a D/E of 0.00 for OKTA. ADSK is therefore the more solvent of the two companies, and has lower financial risk.

Valuation

ADSK trades at a forward P/E of 87.55, a P/B of 218.69, and a P/S of 11.88, compared to a P/B of 16.56, and a P/S of 12.35 for OKTA. ADSK is the cheaper of the two stocks on sales basis but is expensive in terms of P/E and P/B ratio. Given that earnings are what matter most to investors, analysts tend to place a greater weight on the P/E.

Analyst Price Targets and Opinions

Just because a stock is cheaper doesn’t mean there’s more value to be had. In order to assess value we need to compare the current price to where it’s likely to trade in the future. ADSK is currently priced at a -18.82% to its one-year price target of 132.00. Comparatively, OKTA is -16.76% relative to its price target of 32.63. This suggests that ADSK is the better investment over the next year.

The average investment recommendation on a scale of 1 to 5 (1 being a strong buy, 3 a hold, and 5 a sell) is 2.00 for ADSK and 2.20 for OKTA, which implies that analysts are more bullish on the outlook for OKTA.

Insider Activity and Investor Sentiment

The analysis of insider buying and selling trends can be extended to the aggregate level. Short interest, which represents the percentage of a stock’s tradable shares currently being shorted, captures what the market as a whole feels about a stock. ADSK has a short ratio of 2.20 compared to a short interest of 3.06 for OKTA. This implies that the market is currently less bearish on the outlook for ADSK.

Summary

Okta, Inc. (NASDAQ:OKTA) beats Autodesk, Inc. (NASDAQ:ADSK) on a total of 8 of the 14 factors compared between the two stocks. OKTA is growing fastly, has higher cash flow per share, has a higher cash conversion rate, higher liquidity and has lower financial risk. In terms of valuation, OKTA is the cheaper of the two stocks on an earnings and book value, Finally, JEC has better sentiment signals based on short interest.

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