Present Value of Growth Opportunities (PVGO)

A stock's valuation can be heavily influenced by future growth expectations.
As a company generates positive earnings and retains these earnings, its book value of equity increases; however, in order for the positive retained earnings to create wealth for investors, the company's return on equity must exceed its cost of equity.
In theory, when a company sees no attractive growth opportunities, it should payout all earnings as dividends (yeah right, like corporate executives are going to do that!).
PVGO allows analysts to calculate how much growth opportunities contribute to a company's current share price.

PVGO = Price0 - (Earnings current period / rce)

If a company has a stock price of $75 and the PVGO calculation is $50, then growth opportunities contributes 2/3rds of the share valuation.

A stock's valuation can be heavily influenced by future growth expectations.
As a company generates positive earnings and retains these earnings, its book value of equity increases; however, in order for the positive retained earnings to create wealth for investors, the company's return on equity must exceed its cost of equity.
In theory, when a company sees no attractive growth opportunities, it should payout all earnings as dividends (yeah right, like corporate executives are going to do that!).
PVGO allows analysts to calculate how much growth opportunities contribute to a company's current share price.

PVGO = Price0 - (Earnings current period / rce)

If a company has a stock price of $75 and the PVGO calculation is $50, then growth opportunities contributes 2/3rds of the share valuation.