Opportunities and Expectations: The Present Value of Growth Opportunities in Valuation

18 JUNI 2026

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We examine the present value of growth opportunities (PVGO) in the context of the overall stock market as well as individual stocks and argue that the PVGO percentage can be a useful complement to other valuation approaches.
Stock prices commonly reflect the value of current earnings, or the steady state, and the option to make future investments that create value, the PVGO.
We analyze how PVGO as a percentage of price, a proxy for investor expectations, serves as a measure of market timing and find it has modest usefulness, mostly at the extremes.
Next, we consider the PVGO percentage for individual companies and observe that stocks with low percentages outperformed those with high percentages by 260 basis points per year.
We describe a simple analysis that suggests the PVGO percentage may have provided a higher, and more consistent, return than the value factor over the past 25 years.

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Opportunities and Expectations: The Present Value of Growth Opportunities in Valuation

Stock prices reflect the value of current earnings and the option to make investments that create value, the present value of growth opportunities (PVGO). We analyze how PVGO as a percentage of price serves as a measure of market timing and find it has some use. Next, we observe that the stocks of companies with low PVGO percentages outperformed those with high percentages. Lastly, a simple analysis suggests the PVGO percentage provided a higher return than the value factor in recent years.

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IMPORTANT INFORMATION

The views and opinions are those of the author as of the date of publication and are subject to change at any time due to market or economic conditions and may not necessarily come to pass. The views expressed do not reflect the opinions of all investment personnel at Morgan Stanley Investment Management (MSIM) and its subsidiaries and affiliates (collectively the Firm”), and may not be reflected in all the strategies and products that the Firm offers.

This material is for the benefit of persons whom the Firm reasonably believes it is permitted to communicate to and should not be forwarded to any other person without the consent of the Firm. It is not addressed to any other person and may not be used by them for any purpose whatsoever. It is the responsibility of every person reading this material to fully observe the laws of any relevant country, including obtaining any governmental or other consent which may be required or observing any other formality which needs to be observed in that country.

This material is a general communication, which is not impartial, is for informational and educational purposes only, not a recommendation to purchase or sell specific securities, or to adopt any particular investment strategy. Information does not address financial objectives, situation or specific needs of individual investors.

Any charts and graphs provided are for illustrative purposes only. Any performance quoted represents past performance. Past performance does not guarantee future results. All investments involve risks, including the possible loss of principal.

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