PVGO Calculator

A PVGO Calculator (Present Value of Growth Opportunities) is a financial tool used to estimate the value of a company’s future growth prospects.

For example, imagine a company with a stock price of $50, earnings per share of $2, and a cost of equity of 10%. Using the PVGO calculator, we might find that $20 of the stock price is due to current operations, while $30 is attributed to future growth opportunities.

PVGO Calculation Chart

PVGO Formula

The PVGO Formula is:

 Stock Price = NPVGO + PVGO

Where:

• Stock Price = Current market price per share
• NPVGO (No-growth Present Value) = EPS / r
• PVGO = Stock Price – NPVGO
• EPS = Current earnings per share
• r = Required rate of return

Example:

• Stock Price = $50
• EPS = $2
• Cost of Equity = 10%

PVGO = $50 - ($2 / 0.10) = $50 - $20 = $30

This means $30 of the stock price is attributed to future growth opportunities.

How do you calculate PVGO?

To calculate PVGO, follow these steps:

Determine the current stock price from market data.

Calculate the Earnings Per Share (EPS) by dividing net income by the number of outstanding shares.

Estimate the Cost of Equity using methods like CAPM (Capital Asset Pricing Model).

Calculate the value of current operations by dividing EPS by the Cost of Equity.

Subtract the value of current operations from the stock price to get PVGO.

Let’s use example of Apple Inc.:

Current stock price: $150

EPS: $5

Cost of Equity: 8%

Value of current operations: $5 / 0.08 = $62.50

PVGO: $150 – $62.50 = $87.50

Here $87.50 of Apple's stock price would be attributed to future growth opportunities, indicating that investors have high expectations for the company's future performance and innovation.

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