Why Figma Stock Crashed This Week

Key Points

• Figma stock has been more than cut in half from its post-IPO high.

• A solid earnings report didn't spur investor enthusiasm.

• Figma's valuation remains too high for a software company.

• 10 stocks we like better than Figma ›

It wasn't long ago that Figma (NYSE: FIG) was a high-flying new stock that investors craved. After its initial public offering (IPO) was priced at $33 on July 31, shares opened at $85 and soared more than 250% on the first day of trading.

Shares have crashed 55% from the post-IPO high, though, including a drop of 26% this week as of 10:39 ET Friday morning, according to data provided by S&P Global Market Intelligence. Figma reported its first quarterly results as a public company this week. That drove much, but not all, of this week's carnage.

Where to invest $1,000 right now? Our analyst team just revealed what they believe are the 10 best stocks to buy right now. Continue »

Image source: Getty Images.

Stock valuations matter

Figma reported solid quarterly results. Revenue at the designer of cloud-based work collaboration tools jumped 41% year over year. The company was also profitable with positive cash flow. But its outlook for third-quarter revenue implied year-over-year growth would slow to 33%.

That's still strong growth, but the recent euphoria for the stock already has that priced in. Figma stock is trading at about 185 times earnings estimates for this year, even after this week's plunge. It also trades at a price-to-sales (P/S) ratio of more than 25 based on this year's revenue estimate. That's too high for a software stock.

In some cases, overvaluation can last months or even years from investor faith in the future promise of a company. Tesla, for example, is a trillion-dollar company that still trades at a forward price-to-earnings (P/E) ratio of about 200. That's because investors see huge potential in its robotaxi and humanoid robot products. If huge sales increases from those products don't materialize, Tesla stock will also likely crash at some point.

Figma is a different animal. Its design software offerings are growing, but there are concerns that artificial intelligence (AI) could overtake the need for some software products. Investors interested in owning Figma might want to wait for a more reasonable valuation.

Should you invest $1,000 in Figma right now?

Before you buy stock in Figma, consider this:

The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and Figma wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.

Consider when Netflix made this list on December 17, 2004... if you invested $1,000 at the time of our recommendation, you’d have $678,148!* Or when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you’d have $1,052,193!*

Now, it’s worth noting Stock Advisor’s total average return is 1,065% — a market-crushing outperformance compared to 186% for the S&P 500. Don’t miss out on the latest top 10 list, available when you join Stock Advisor.

See the 10 stocks »

*Stock Advisor returns as of August 25, 2025

Howard Smith has positions in Tesla. The Motley Fool has positions in and recommends Tesla. The Motley Fool has a disclosure policy.