PVGO Calculator
Calculate the present value of growth opportunities (PVGO) for stock valuation. This calculator helps investors understand how much of a stock's value comes from expected future growth versus current operations.
Current Operations
Growth Expectations
PVGO Results
Present Value of Growth Opportunities:
$0.00
No-Growth Value:
$0.00
Growth Component:
0.00%
Valuation Analysis
P/E Ratio:
0.00
Growth Premium:
Investment Attractiveness:
N/A
Growth Assessment
Growth vs Required Return:
N/A
Growth Sustainability:
N/A
Valuation Confidence:
N/A
Understanding Present Value of Growth Opportunities
The Present Value of Growth Opportunities (PVGO) is a fundamental concept in stock valuation that separates a company's current operational value from the value of its future growth prospects. This metric helps investors understand how much of a stock's price reflects expected growth versus current earnings.
What is PVGO?
Definition
- Present value of expected future growth
- Difference between stock price and no-growth value
- Measures market expectations for growth
- Key component of stock valuation
Formula
- PVGO = Stock Price - (Earnings ÷ Required Return)
- Stock Price = No-Growth Value + PVGO
- No-Growth Value = EPS ÷ r
- Where r is the required rate of return
PVGO Components
Valuation Breakdown
How stock price is decomposed
No-Growth Value:
- Value if company never grew
- EPS divided by required return
- Perpetual annuity of current earnings
- Baseline valuation component
Growth Component:
- PVGO as percentage of stock price
- Higher percentage = growth stock
- Lower percentage = value stock
- Market expectations for future growth
Interpreting PVGO Values
High PVGO (Growth Stocks):
- Large portion of value from expected growth
- Higher risk due to growth assumptions
- More sensitive to growth disappointments
- Examples: Technology, biotech companies
Low PVGO (Value Stocks):
- Most value from current operations
- Lower risk, more stable
- Less sensitive to growth expectations
- Examples: Mature, dividend-paying companies
PVGO and Gordon Growth Model
| Model Component | Formula | Relationship to PVGO | Interpretation |
|---|---|---|---|
| Gordon Growth Model | P = EPS × (1-g) ÷ (r-g) | P = No-Growth Value + PVGO | Total stock price decomposition |
| No-Growth Value | P_ng = EPS ÷ r | Value without growth | Perpetual earnings value |
| PVGO | PVGO = P - P_ng | Value of growth opportunities | Market's growth expectations |
Factors Affecting PVGO
Market Expectations:
- Industry growth prospects
- Company competitive advantages
- Economic conditions
- Interest rate environment
Company-Specific Factors:
- ROIC and reinvestment opportunities
- Management quality
- Brand strength
- Innovation pipeline
PVGO in Investment Analysis
Growth Stock Identification:
- High PVGO relative to stock price
- Growth expectations built into valuation
- Higher volatility and risk
- Suitable for growth-oriented investors
Value Stock Screening:
- Low PVGO as percentage of price
- Value primarily from current operations
- Lower risk, more stable returns
- Attractive to income-focused investors
Limitations of PVGO
Assumption Sensitivity:
- Required return estimation
- Growth rate assumptions
- Earnings quality and sustainability
- Market efficiency assumptions
Practical Challenges:
- Future growth is uncertain
- Competitive dynamics change
- Accounting quality issues
- Market sentiment fluctuations
PVGO and Portfolio Strategy
Growth Portfolio:
- High PVGO stocks
- Higher expected returns
- Higher volatility
- Long-term growth focus
Value Portfolio:
- Low PVGO stocks
- Lower expected returns
- Lower volatility
- Income and stability focus
Key Takeaways for PVGO Analysis
- PVGO represents the present value of a company's expected future growth opportunities
- Stock price equals the no-growth value plus the PVGO
- No-growth value is calculated as current earnings divided by the required rate of return
- High PVGO stocks are growth-oriented and more volatile
- Low PVGO stocks derive most of their value from current operations
- PVGO analysis helps investors understand market expectations for growth
- The metric is sensitive to assumptions about growth rates and required returns
- PVGO can be used for stock screening and portfolio construction