The Ultimate Growth Stock To Buy Now With $50

Figma’s price quickly tripled after the IPO and then plummeted by almost 70%.
The company is positioned to compete in a new era of AI-based software.
Figma’s share price is much more palatable and offers more upside potential at its current price.
10 stocks we like better than Figma ›

When a company goes public, you will often read and hear a lot about it. Unfortunately, investing in the hottest IPO stocks often backfires.

To take Figma (NYSE: FIG) For example. The stock soared, tripling on its first day of trading. Since then, the stock has collapsed. Figma is currently trading almost 70% below its high, a catastrophic outcome for anyone who initially bought and held shares.

Figma isn’t the first IPO stock to fall, and it won’t be the last. Investors shouldn’t blame Figma for that.

Instead, now is a good time to revisit the company, as it has such a high ceiling that it might be the best growth stock you can buy for $50 right now. Here’s why.

Image source: Getty Images.

Ultimately, there is no substitute for human creativity. Yet it has become clear that artificial intelligence (AI) and other technologies will play an increasingly important role in shaping the way people innovate and create content, whether that’s art, entertainment or any other digital experience.

Figma, a digital creativity software company, is coming of age at just the right time.

The company’s software, infused with AI capabilities, allows users to create digital experiences ranging from websites to applications and social media content. What’s unique about Figma is how easily users can collaborate. The multiplayer feature allows multiple users to collaborate on one project in real time. They can even see each other’s cursors moving across their screen.

Figma’s success was compelling Adobethe incumbent leader in creativity software, to try to acquire it. The two companies agreed to a $20 billion deal, but it fell through due to regulatory scrutiny.

It has worked out well for Figma to remain independent. It received $1 billion from Adobe in compensation for terminating the merger, and a few years later the company went public.

Revenue grew 38% year-on-year in the third quarter, bringing year-to-date revenue to just under $1 billion. Importantly, Figma is already highly profitable, with approximately $269 million in free cash flow over the last four quarters, accounting for approximately 28% of revenue.

Granted, Figma has spent a whopping $1.1 billion on stock-based compensation this year. Excessive stock-based compensation carries the risk of equity dilution, but in this case that is mainly due to the IPO. Expect this to decline further in the coming quarters.

Looking ahead, Figma remains well positioned for future growth. The company boasts an impressive net revenue retention rate of 131%. That means Figma’s customers spend significantly more money when they use the platform.

There are currently 12,910 customers spending at least $10,000 in annual recurring revenue, and 1,262 customers spending at least $100,000. High-end customers are growing faster (44% year-over-year growth in the third quarter versus 32%), indicating that Figma is successfully integrating itself into its customers’ core businesses.

This land-and-expand model bodes well for sustainable long-term revenue growth, helping Figma build a competitive position at a time when AI is posing a threat to companies in the software space.

Does investing in Figma involve risks? Absolute. Adobe will undoubtedly put pressure on Figma, and the company should continue to implement it. Sales growth has slowed somewhat from earlier this year, and investors will want to wait for it to stabilize. If the revenue retention rate collapses, that’s a serious warning sign.

But every share has risks. The key is to invest when the stock price adequately reflects the risks. With Figma’s stock price collapsing the way it is today, it has actually become a better investment. You can see how the price-to-sales ratio has dropped dramatically compared to the IPO time frame.

FIG PS ratio graph — FIG PS ratio data according to YCharts

With 19x sales over the last twelve months, the stock is now cheaper than some of Wall Street’s most popular software names, such as Palantir Technologies And CrowdStrike Holdings.

Figma could remain volatile as a new growth stock in an unpredictable AI and software landscape. Investors can use the average dollar rate to avoid getting in at an inopportune time. That said, a lot of hot air has been blown out of this IPO balloon, making the long-term benefits as a leading next-generation software company worth buying here.

Before you buy shares in Figma, consider the following:

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Justin Pope has no position in any of the stocks mentioned. The Motley Fool holds positions in and recommends Adobe, CrowdStrike, and Palantir Technologies. The Motley Fool recommends Figma and recommends the following options: long January 2028 $330 calls at Adobe and short January 2028 $340 calls at Adobe. The Motley Fool has a disclosure policy.

The Ultimate Growth Stock You Can Buy Right Now with $50 was originally published by The Motley Fool