Should You Buy The Dip on Figma Stock?

Key Points

• Figma went public in late July.

• The stock has not done well outside of the first few trading days.

• Management will need to show investors what the next big growth trend is for it to be a viable investment option.

• 10 stocks we like better than Figma ›

Figma (NYSE: FIG) was one of the hottest IPOs on the market when it went public in late July. Although shares were initially intended to be offered to the public at around $33 per share, they quickly rose to more than $120 per share. However, the stock is now worth about $55 per share and is down over 50% from its highest point shortly after going public.

With that gigantic drop, many investors may be thinking it's time to buy the dip on Figma stock, as it would provide monstrous returns if it returned to its all-time high. But is now the right time to do this? Or do investors need to exercise more patience?

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Figma needs to continue upselling existing clients

Figma provides collaborative software that enables clients to design user interfaces simultaneously. This dramatically reduces development time, as the development team can work together rather than individually. Figma has several products that enhance its core functionality, and convincing clients to adopt these additional features is crucial to Figma's growth story.

One of those is Figma Make, which allows users to input a written description into a chat prompt and have generative AI create a design for them. This is a powerful tool, and may allow companies to streamline their design efforts by supplementing a single software engineer with tools that help them do their job more efficiently. That's just one example of an add-on, and Figma will need to keep adding additional capabilities if it wants to continue growing.

One concerning issue for me is that Figma has already captured a large chunk of its target audience. In its S-1 registration filing, Figma claimed that 78% of the Forbes 2000 are clients and that 76% use at least two Figma products. Those are impressive metrics, but they limit future growth available for Figma.

Still, in Q2, Figma's revenue grew at a 41% year-over-year pace. In its S-1 document, Figma noted 46% year-over-year growth, so it seems that Figma's growth is slowing down. Additionally, Wall Street analysts project Figma will grow at a 23% rate in 2026.

With Figma's growth rate slowing, I think it's OK for investors to be patient with this stock, as the market may continue to react negatively to its new quarterly results. There's also another major issue looming for Figma, and savvy long-term investors will likely wait until it's resolved before buying shares.

Increased selling pressure could drive the stock down even further

There are different rules surrounding how a company goes public, but one common rule is that insiders are not allowed to sell shares for a certain period. This is known as a "lock-up period," and insiders will be able to sell after certain conditions are met. There are multiple lock-up dates for Figma's insiders, but these will all be met within the next six months.

Because Figma's stock price is still significantly higher than its intended IPO price, insiders will likely want to sell at least some of their stock to lock in impressive returns, especially after being a privately held company for so long. This will lead to increased selling pressure, potentially driving the stock price down.

As a result, I think investors should remain patient with Figma stock and wait until next summer before considering a purchase of Figma shares. This will give management time to lay out their growth thesis and allow the stock to stabilize with more shares being sold. If Figma appears to be an attractive investment, then investors should consider purchasing it. However, there are far too many risks to consider when scooping up shares right now, and investors should steer clear.

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Keithen Drury has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.