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

Morgan Stanley

Michael Mauboussin, Dan Callahan

Research

16 Pages

Morgan Stanley examines PVGO, a way to estimate how much of a stock’s price reflects future value creation versus current earnings power. PVGO averaged 35% of S&P 500 price from 1961 to 2025, and lower PVGO levels were generally followed by stronger returns.

Key Takeaways

Expectations Shape Returns: The lowest S&P 500 PVGO quartile was followed by 11.6% annualized 10 year returns versus 7.6% for the highest quartile.
Company Spreads Persist: Among U.S. companies above $1 billion, low PVGO stocks beat high PVGO stocks by 260 basis points annually over 5 years.
PVGO Beats Value: From 1990 to 2024, PVGO’s average 5 year return spread was 230 basis points above the traditional value factor.
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