$7,000 isn't a lot of money in the investing world -- most financial advisors will likely tell you to put that small sum into a low-cost index fund. While that's certainly a sound conservative strategy, investors should also note that $7,000 placed on the right stock can blossom into hundreds of thousands of dollars within a few years.

One industry that has excelled at delivering multi-bagger returns is the cloud software market. The cloud market has been on fire over the past two decades, as higher internet speeds made it more practical and cost efficient to remotely store and access documents. Let's take a look at three cloud stocks that turned $7,000 into small fortunes within relatively short time frames -- Ellie Mae (NYSE:ELLI), Salesforce.com (NYSE:CRM), and Citrix Systems (NASDAQ:CTXS).

Four piggybanks, side by side.

Image source: Getty Images.

Ellie Mae

Ellie Mae is a cloud-based software company that processes about a quarter of all U.S. mortgage applications. The company's Encompass software-as-a-service (SaaS) platform modernizes and streamlines the mortgage application process, which is frequently a time-consuming and low-tech process requiring fax machines and piles of printed documents. It also helps ensure that borrowers are creditworthy -- which many lenders failed to do prior to the financial crisis.

Ellie Mae went public at $6 per share in 2011. $7,000 would have been enough to purchase 1,166 shares -- which would be worth over $109,000 today. That massive growth was fueled by soaring demand for its software in the aftermath of the financial crisis, which saw regulators tighten regulations across the mortgage industry. That's why Ellie Mae's annual revenue rose from $55.5 million in fiscal 2011 to $360.3 million in fiscal 2016, and it's profitable by both GAAP and non-GAAP metrics. Analysts expect its revenue to grow another 22% this year, but for its non-GAAP earnings to dip 18% on higher expenses.

Salesforce.com

Salesforce.com is the biggest cloud-based CRM (customer relationship management) platform vendor in the world. Its core SaaS platforms, which help companies maintain relationships with customers, include the Sales Cloud, Service Cloud, App Cloud, and Marketing Cloud. It recently launched Salesforce Einstein, which uses artificial intelligence to tune its services based on individual customer needs.

Salesforce went public in 2004 at $11 per share; $7,000 would have been enough to buy 636 shares. After a 4:1 split in 2013, you'd own 2,544 shares, which would be worth over $207,000 today. That growth occurred because higher-speed connections and computing hardware made it more practical to migrate customer relationship tools to the cloud, where they could be easily scaled up, backed up, or analyzed.

Between fiscal 2004 and 2016, Salesforce's annual revenue rose from $96 million to $6.7 billion -- but it still isn't consistently profitable on a GAAP basis. Analysts expect its revenue and non-GAAP earnings to respectively rise 25% and 31% this year.

Citrix Systems

Citrix Systems popularized cloud-based app virtualization, which delivers apps as services across networks and public, private, and hybrid clouds. This means that instead of using installed software on individual machines, users can remotely run software hosted on other machines. That model makes it easy for companies to scale up their operations, and keeps everyone on the same page with the same software.

Citrix went public in 1995 at $15 per share. $7,000 would have been enough to buy 466 shares. The stock subsequently split four times, which would give you 5,592 shares -- which would be worth over $450,000 today. The same tailwinds which lifted Salesforce boosted Citrix's annual revenue from $44.5 million to $3.42 billion between fiscal 1996 and 2016. Citrix is also profitable by both GAAP and non-GAAP metrics.

Analysts expect its revenue to fall 17% this year, due to the sale of its GoTo family of products to Logmein, but rebound 4% in 2018. Its non-GAAP earnings are expected to fall 13% this year before rising 9% next year.

But mind the valuations...

Ellie Mae, Salesforce, and Citrix all had great post-IPO runs, but the first two stocks aren't cheap. Ellie Mae has a P/E of 94 and Salesforce has a P/E of 276 -- which are both much higher ratios than the industry average of 54 for application software vendors. Citrix's P/E of 27 looks more reasonable, but that's probably because it isn't expected to post positive top and bottom line growth until next year.

Therefore, these three stocks are still interesting growth plays -- but investors shouldn't expect them to repeat their post-IPO rallies over the next few years.

 

Leo Sun has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Ellie Mae. The Motley Fool recommends Salesforce.com. The Motley Fool has a disclosure policy.