1. What is PVGO?

The Present Value of Growth Opportunities (PVGO) represents the portion of a stock's price that is attributable to future growth opportunities rather than current earnings. It helps investors evaluate how much of a company's value comes from its growth potential.

2. How Does the Calculator Work?

The calculator uses the PVGO formula:

Where:

• \( Stock\ Price \) — Current stock price in GBP/share
• \( EPS \) — Earnings per share in GBP
• \( Cost\ of\ Equity \) — Required rate of return for equity investors (as decimal)

Explanation: The formula subtracts the value of current earnings (EPS divided by cost of equity) from the total stock price to isolate the value attributed to future growth.

3. Importance of PVGO Calculation

Details: PVGO helps investors distinguish between value derived from current operations versus future growth potential. A high PVGO suggests the market expects significant future growth, while a low or negative PVGO may indicate limited growth prospects.

4. Using the Calculator

Tips: Enter stock price in GBP/share, EPS in GBP, and cost of equity as a decimal (e.g., 0.08 for 8%). All values must be positive.

5. Frequently Asked Questions (FAQ)

Q1: What does a negative PVGO mean?
A: A negative PVGO suggests the market values the company's current earnings more than its growth prospects, possibly indicating skepticism about future growth.

Q2: How is cost of equity determined?
A: Cost of equity can be estimated using models like CAPM (Capital Asset Pricing Model), typically ranging between 5-15% for most companies.

Q3: What are typical PVGO values?
A: Growth companies often have PVGO representing 50-80% of their stock price, while mature companies may have much lower PVGO percentages.

Q4: Can PVGO be used for all stocks?
A: PVGO is most meaningful for profitable companies. For companies with zero or negative earnings, alternative valuation methods may be more appropriate.

Q5: How does PVGO relate to P/E ratio?
A: Stocks with high P/E ratios often have high PVGO, as both metrics reflect expectations of future growth relative to current earnings.