From the share price, EPS, and required return, compute the premium the market pays for the company's future growth (PVGO).
Input Data
Results
At a glance:PVGO is the portion of a stock's price not explained by current no-growth earnings; it equals price minus EPS divided by the required return.
Formula
noGrowthValue = eps / requiredReturnPct%
pvgo = sharePrice − noGrowthValue
$$PVGO = P_0 - \dfrac{EPS}{r}$$$$\dfrac{P_0}{EPS} = \dfrac{1}{r} + \dfrac{PVGO}{EPS}$$How to Use
- Enter the share price and EPS.
- Enter the required return.
- Read the PVGO (growth premium).
FAQ
What does a positive PVGO mean?
A positive PVGO means the market prices in future growth opportunities — the price is above the no-growth value (EPS ÷ required return). The larger the PVGO share of the price, the more the stock's value rests on future growth rather than today's earnings.
Can PVGO be negative?
Yes. If the market price is below the no-growth value (EPS ÷ required return), PVGO is negative — the market expects shrinking earnings, or it distrusts the firm's ability to earn even the required return. That often signals deep trouble or very low expectations.
What is the no-growth value?
It is the value if the firm paid out all earnings forever with no reinvestment and no growth: EPS ÷ required return. It is the 'floor' of the stock price; any excess is the growth premium (PVGO).
How does PVGO relate to the P/E ratio?
They are two views of the same thing. A high P/E usually means a large PVGO (the market expects strong growth); a low P/E means most of the price is the no-growth earnings value. Combining them helps you see whether a high P/E is justified by genuine growth or just hype.
How do I use PVGO for stock valuation and what can go wrong?
PVGO breaks a stock price into 'value of current earnings if no growth' plus 'value of future growth', helping you see what the price actually assumes. Practical use: first, estimate no-growth value = EPS ÷ required return; second, compare it with the market price to get PVGO and its share of the price — a high share means the price leans heavily on growth, so the growth must materialise; third, judge whether the assumed growth is realistic against the firm's track record and industry. Pitfalls: the inputs are sensitive — a higher required return lowers both no-growth value and PVGO, and EPS must be representative (exclude one-offs); PVGO can even be negative if the market is pessimistic. So read PVGO with P/E and the growth outlook, not in isolation. For Hong Kong stocks, also note EPS may be distorted by property revaluation or other non-cash items; use normalised earnings for a reliable PVGO. Use it as an analytical lens, paired with other valuation tools, not as a buy/sell signal.
References
Content review: Calculatorism Finance Team. Results are for reference only; please refer to the relevant authorities for the official figures.