Taking a buy-and-hold approach to great stocks can be a path to life-changing returns. To demonstrate the power of long-term investing, two Motley Fool contributors have profiled companies that turned even modest investments into incredible sums.
Read on for a look at two stocks that could have turned a $1,000 investment into a huge cash pile if you had bought them at their initial public offering (IPO) and held on through the years.
Tesla turned $1,000 into more than $150,000
Keith Noonan: Tesla (TSLA 15.31%) spearheaded the electric vehicle (EV) market. The company, led by CEO Elon Musk, has grown at an astounding pace and delivered incredible returns for investors who bought the stock at opportune times and sat back as the business served up wins.
TSLA Revenue (TTM) data by YCharts. TTM = trailing 12 months.
Strong demand for Tesla's vehicles helped the company rapidly scale production and deliveries, thereby sending its revenue skyrocketing. As the company continued to expand, it also enjoyed increasing economies of scale. The marginal cost to produce an additional vehicle decreased, leading to increased profit margins.
In 2020, these dynamics helped Tesla post its first full year of profitability. It looks like the industry innovator will continue serving up profitable growth for many years. The company commands profit margins on its vehicle sales that are the envy of the broader automotive industry, and it remains the market leader in the EV space.
Even though Tesla stock has pulled back from its lifetime high, the company has a market capitalization of roughly $797 billion and ranks as the world's eighth-largest company. Its stock is up more than 15,760% from its closing price on the day of its IPO in June 2010. That means a $1,000 investment in the company on the day of its public debut would now be worth over $158,000.
Netflix has made investors wealthy
Parkev Tatevosian: It's always exciting to look at the phenomenal returns some stocks have generated over the years. Netflix (NFLX -0.31%) is one of my favorite examples. When the streaming pioneer first introduced the product, it was met with more doubters than supporters, to be sure. Fast forward to today, and its strategy is being copied by legacy media companies worldwide.
Since its initial public offering on May 23, 2002, Netflix's stock price is up over 29,630%. Investors who purchased $1,000 of Netflix stock at its IPO would have stock worth over $297,000 as of this writing. Remarkable. It's important to mention that Netflix's exponential returns have been supported by excellent business performance.
In the last decade, Netflix's revenue has grown from $4.3 billion to $31.6 billion, creating a new way to consume content for millions of people. More impressively, that growth in sales has led to increasing profits. Between 2013 and 2022, Netflix's operating income grew from $228 million to $5.6 billion.
Now, if you were to ask me whether Netflix can deliver similar stock price performance over the next few decades, I would say probably not. However, investors who buy Netflix stock today and hold it for a decade or more are likely to experience an increase in their wealth. Even if it's not by as much as those who invested in Netflix stock at its IPO.
What do these incredible stocks have in common?
Tesla and Netflix might look like very different companies, but they have a handful of key characteristics in common that helped them deliver incredible returns for shareholders. Crucially, they were both innovators with highly scalable business models, and management at both businesses consistently delivered high-level execution.
Betting on companies that set out to implement and advance disruptive innovations is risky, but it can have incredible payoffs. Even if most of your bets on these kinds of stocks wind up failing, it really only takes one Netflix or Tesla to deliver life-changing returns.
