$3,000 might not seem like enough to invest in the stock market. Many financial advisors would likely tell you to invest that amount in a low-cost index fund instead of buying shares of a single stock. However, $3,000 can blossom into over $120,000 faster than you might think. Let's take a look at two Chinese stocks -- Baidu (NASDAQ: BIDU) and Ctrip (NASDAQ: CTRP) -- that accomplished that in just over a decade.
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Baidu, the biggest search engine in China, went public at $27 per share in 2005. $3,000 would have been enough to buy 111 shares. After the stock's 10-for-1 split in 2010, you would have 1,110 shares -- which would be worth nearly $200,000 today.
In hindsight, it seems like a no-brainer to invest in "China's Google." After all, the country already has more than 720 million internet users, which is morethan double the U.S. population and accounts for about a fifth of the world's internet users. But at the time of its IPO, Alphabet's (NASDAQ: GOOG) (NASDAQ: GOOGL) Google was still active in China, and the bears doubted Baidu's ability to compete against the search behemoth.
That all changed in 2010, when Google shut down its Chinese search engine after clashes with the government over censorship andallegations of email hacking. Baidu filled the void, became the dominant search engine, and built a Google-like ecosystem of websites and cloud-based apps to widen its moat.
Baidu's annual revenue soared from$2.3 billion in 2011 to $10.2 billion in2015. Analysts expect that growth tocontinue, with 9% growth this year and 22% growth in 2017. Baidu's earnings are expected to fall 18% this year due to higher investments in O2O (online-to-offline) services -- such as ride-hailing, food deliveries, mobile payments, and other services integrated into its mobile app -- but once those investments become accretive, Baidu's earnings are expected to rebound 53% next year.
Ctrip, the largest online travel agency (OTA) in China, went public in 2003 at $18 per share. $3,000 would have been enough to buy 167 shares. Following four 2:1 splits, you would own 2,672 shares, which would be worth nearly $126,000 today.
Image source: Getty Images.
Ctrip's growth was supported by a massive growth market: the newly affluent Chinese traveler. Total revenues of China's OTA market soared 46% annually to$1.05 billion in the second quarter of 2016, according to iResearch. That rapid growth is mirrored in Ctrip's revenue, which rose48% in 2015.
That growth looks robust, but Ctrip's earnings growth was volatile over the past few years due to aggressive pricing wars with rivals like Qunar (NASDAQ: QUNR). But last year, Baidu swapped its 25% stake inQunar with Ctrip, making Ctrip a major investor in Qunar. That move, which strengthens Baidu's aforementioned O2O efforts, makes it pointless for Ctrip and Qunar to undercut each other's prices. Qunar is also expected to pivot toward smaller "tier 3 and 4" cities as Ctrip continues serving "tier 1 and 2" cities.
The addition of the Qunar stake is expected to boost Ctrip's revenue by 76% this year, followed by 36% growth in2017. The company is also expected to return to profitability next year after recording a netloss this year. With the competition now fading, Ctrip is well-poised to assert its dominance and widen its moat with new services.
The key takeaway
It takes lots of research and luck to find fast growers like Baidu and Ctrip, which both had to be held through very volatile times to book today's gains. But finding and holding these multibagger stocks can generate massive gains, in these cases turning investments of $3,000 into enough cash to buy a home.
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Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Leo Sun has no position in any stocks mentioned. The Motley Fool owns shares of and recommends GOOG, GOOGL, and BIDU. The Motley Fool recommends CTRP. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.