1. What is PVGO?

PVGO (Present Value of Growth Opportunities) represents the portion of a company's stock price that is attributable to future growth opportunities, as opposed to current earnings. It helps investors assess how much of the stock's value comes from expectations of future growth.

2. How Does the Calculator Work?

The calculator uses the PVGO formula:

Where:

• Stock Price — Current market price per share (USD/share)
• Earnings — Current earnings per share (USD/share)
• Cost of Equity — Required rate of return for equity investors (decimal)

Explanation: The formula separates the stock price into two components: the value of current earnings (Earnings/Cost of Equity) and the value of future growth opportunities (PVGO).

3. Importance of PVGO Calculation

Details: PVGO helps investors understand how much of a company's valuation is based on expectations of future growth versus current profitability. A high PVGO suggests the market expects significant future growth, while a low or negative PVGO suggests limited growth expectations.

4. Using the Calculator

Tips: Enter stock price and earnings in USD/share, and cost of equity as a decimal (e.g., 0.08 for 8%). All values must be positive, with cost of equity between 0 and 1.

5. Frequently Asked Questions (FAQ)

Q1: What does a negative PVGO mean?
A: A negative PVGO suggests the market values the company at less than the present value of its current earnings, possibly indicating skepticism about future growth or concerns about earnings sustainability.

Q2: How is cost of equity determined?
A: Cost of equity is typically estimated using models like CAPM (Capital Asset Pricing Model), which considers the risk-free rate, market risk premium, and the stock's beta.

Q3: What's a typical PVGO range?
A: PVGO varies by industry and growth stage. High-growth tech companies often have large PVGO values, while mature companies in stable industries may have small or negative PVGO.

Q4: Can PVGO be greater than the stock price?
A: No, because PVGO is calculated by subtracting a positive value (Earnings/Cost of Equity) from the stock price. However, PVGO can approach the stock price if current earnings are very small.

Q5: How does PVGO relate to P/E ratios?
A: Stocks with high PVGO typically have high P/E ratios, as investors are paying more for each dollar of current earnings in anticipation of future growth.