1. What is PVGO?

The Present Value of Growth Opportunities (PVGO) represents the portion of a company's stock price that is attributable to future growth opportunities, beyond its current earnings level. It helps investors separate the value of a company's existing operations from its growth potential.

2. How Does the Calculator Work?

The calculator uses the PVGO equation:

Where:

• \( P \) — Current stock price (USD/share)
• \( E \) — Earnings per share (USD/share)
• \( r \) — Required rate of return (decimal)

Explanation: The term \( \frac{E}{r} \) represents the value of the company if it distributed all earnings as dividends with no growth. PVGO is what remains after subtracting this no-growth value from the actual stock price.

3. Importance of PVGO

Details: PVGO helps investors assess how much of a company's valuation comes from growth expectations. A high PVGO suggests the market expects significant future growth, while a low or negative PVGO suggests limited growth prospects.

4. Using the Calculator

Tips: Enter the current stock price in USD/share, earnings per share in USD/share, and required return as a decimal (e.g., 0.1 for 10%). All values must be positive (except earnings can be zero).

5. Frequently Asked Questions (FAQ)

Q1: What does a negative PVGO mean?
A: Negative PVGO suggests the market values the company below its no-growth value, possibly due to expected earnings decline or high risk.

Q2: How is required return determined?
A: Required return is typically estimated using models like CAPM (Capital Asset Pricing Model) or based on investor's opportunity cost.

Q3: What's a good PVGO value?
A: There's no universal "good" value. Growth companies typically have higher PVGO, while mature companies may have lower PVGO.

Q4: Can PVGO be greater than the stock price?
A: No, since PVGO = P - E/r, it can't exceed P (unless E is negative, which would be unusual).

Q5: How does PVGO relate to P/E ratio?
A: High PVGO often correlates with high P/E ratios, as both reflect growth expectations.