Splitting a share price into earnings and growth
Every share price quietly contains two bets. The first is on the earnings the company already produces; the second is on the growth those earnings might achieve in the years ahead. PVGO separates the two by first asking what the stock would be worth if it never grew — its current earnings paid out forever as a level perpetuity — and then treating everything above that baseline as the market’s price tag on future growth. The result tells you how much of what you are paying rests on the company staying the same versus getting bigger.
The PVGO formula
No-growth value = EPS ÷ required return
PVGO = Share price − No-growth value
where EPS is earnings per share and the required return is the rate investors demand to hold the stock. The no-growth value is simply a perpetuity of today’s earnings; the leftover is PVGO, which can be positive when growth is expected or negative when the market prices in decline.
What makes this calculator different
- It splits price into its two parts. The result breaks the share price down into the value of current earnings and the value of growth, so you can see exactly where the price is coming from.
- PVGO as a percentage of price. Beyond the dollar figure, it shows PVGO as a share of the total price — the clearest gauge of how growth-dependent a stock’s valuation really is.
- It handles negative PVGO honestly. When the price falls below the no-growth value, the calculator reports a negative PVGO rather than hiding it, flagging that the market expects earnings to shrink.
PVGO is the flip side of the price-to-earnings multiple: a rich P/E is simply a large growth component expressed as a ratio. To approach the same valuation from the multiple, use ourP/E ratio calculator.
Frequently asked questions
What is PVGO and what is the formula?+
PVGO stands for the present value of growth opportunities — the portion of a stock’s price that is attributable to expected future growth rather than its current earnings. You find it by treating today’s earnings as a no-growth perpetuity and subtracting that value from the share price: PVGO = price − EPS ÷ required return. Whatever is left over is the market’s implicit valuation of the company’s future growth.
What does the no-growth value represent?+
The no-growth value is what the stock would be worth if the company simply paid out its current earnings forever, with no growth at all. Mathematically it is a level perpetuity: EPS divided by the required rate of return. It is the baseline a share would trade at if investors expected earnings to stay flat indefinitely, so any premium above it must be paying for growth.
What does a high PVGO share of price mean?+
When PVGO makes up a large fraction of the price, the market is pricing in a great deal of future growth. Investors are paying mostly for what the company might become rather than what it earns today. That implies high expectations — and higher risk, because if the anticipated growth fails to materialize the stock has further to fall.
Can PVGO be negative?+
Yes. PVGO turns negative when the share price sits below the no-growth value, which happens when the market expects earnings to shrink rather than grow. In that case investors are effectively assigning a discount to the firm’s future, valuing it at less than a flat-earnings perpetuity would suggest. A negative PVGO is a signal that the market sees decline ahead.
How does PVGO relate to the P/E ratio?+
The two are closely linked: a high price-to-earnings ratio usually means a large PVGO component. A stock with a P/E far above 1 ÷ required return is being priced well beyond its no-growth perpetuity value, so the excess is growth value. Splitting price into earnings value and growth value with PVGO is just another way of explaining what a rich P/E is actually paying for.
Disclaimer: This calculator is foreducation and illustration only. PVGO rests on simplifying assumptions — that current earnings can be modelled as a level perpetuity at a single required return — and the figures it produces are not valuations of any specific security. Nothing here is investment, tax, or trading advice.