Figma is not a buy due to margin erosion from aggressive growth spending and a valuation still higher than the speaker's DCF target.

Figma has reported three consecutive quarters of accelerated revenue growth. In the most recent, revenue accelerated 48% to 370 million compared to the same quarter last year. Figma attributes this to high adoption of the company's AI-enhanced credit consumption model.

Looking forward, the company raised its revenue outlook for the rest of the full year, forecasting revenue growth at 39% at the midpoint. Still, the management team did not raise its expectations for profitability, informing investors that despite the impact on profit margins, the company is happy with investing in the business to grow revenue, gain competitive advantages, even at the expense of margins.

But does all of this make Figma stock a buying opportunity? Let's take a closer look and answer the question.

Figma has done an excellent job increasing revenue from 500 million in the trailing 12 months of January of 2024 up to 1.28 billion in the most recent trailing 12-month period.

As I mentioned more recently, the company's revenue growth rate exceeded 40% So, Figma is growing revenue at more than three X the rate of Adobe. Of course, given it's a much smaller business, so it's growing from a much smaller base.

Still, it's gaining market share against competitors like Adobe, and if it continues at this rate, it would be great news for investors. But as I mentioned in the introduction of the video, it's coming at the expense of margins.

Figma is not doing that. They're growing revenue, in fact, as I mentioned, three consecutive quarters of accelerating revenue growth and forecasting revenue growth of 40% for the full year.

So, revenue growth is excellent, but it's coming at the expense of margins.

And when you look at the company's cash flow from operations to sales ratio, that's dropped considerably. This figure was 30% or nearly 30% in the 12 months ended November of 2025, and that's dropped all the way down to 19 and 1/2% over the trailing 12-month period.

And given the management team's forecast for revenue growth at the expense of margins for the full fiscal year, it wouldn't surprise me if this margin continues falling. And Figma is doing that.

They're doing that aggressively, and they are gaining market share.

Similar to declining cash flow from operations to sales margins, the company's returns on invested capital are dropping as well. Over the trailing 12-month period, it collapsed to -104%.

So, this looked like business that's investing aggressively in growth at the expense of margins. And so, it makes the revenue growth look less impressive to me.

I like to see businesses that are growing revenue while improving margins. Even if the margins are negative, if they're improving, that's a positive signal to me.

So, investors look like they feel the same way about this business as I do. I was not as impressed with the revenue growth once I looked at the margin profile and the declines in that category.

And Figma stock is down 38% year-to-date in 2026. So, investors by and large are not impressed with Figma's growth given that it's coming at the expense of margins.

And similarly, the valuation has dropped when measuring on a forward price-to-earnings basis. Figma is now trading at a forward price-to-earnings of 65, which is near the lowest this business has traded for according to this valuation metric.

It's been trading at these levels since about April of 2026.

The valuation dropped considerably and has remained cheap or relatively cheap according to its history since April of 2026.

So, it looks like the last time I evaluated the company, I made a correct decision in informing investors that it did not look like a buying opportunity. And my last evaluation of the business came on March 20th, 2026, when I informed investors that it didn't look very attractive at those prices.

I also updated my valuation for Figma using my discounted cash flow model, and I came to the conclusion that the business is worth $16.25. As of today's market close, it was trading at $23.20.

So, despite the drop off in share price, Figma stock still does not look like an attractive buying opportunity on the dip. So, I will be reiterating my ranking for Figma stock, informing investors that it doesn't look like an attractive opportunity.

I would wait for a further dip in the share price, or I would wait for an inflection point in the company's profit margins to consider upgrading the stock to a buying opportunity.