Value Basics 101
This term represents the portion of a company’s value that comes from its future profitable opportunities.
What is the Present Value of Growth Opportunities (PVGO)?
Horizon value is used to estimate a company’s value during this stage.
What is the maturity or stable growth stage?
Over time, PVGO typically moves in this direction.
What is downward, approaching zero as the company matures?
This company lost its PVGO after Apple disrupted its mobile dominance.
What is Nokia?
When PVGO equals zero, this happens to the P/E ratio.
What is it equals 1 divided by the discount rate (1/r)?
PVGO tells investors how much of a firm’s total value depends on this.
What is expected future growth?
The horizon value must always be adjusted using this financial process.
What is discounting to present value?
A negative PVGO indicates this about expected returns.
What is that returns are below the cost of capital?
This company lost PVGO when it failed to innovate in smartphones.
What is BlackBerry?
If discount rates rise, this happens to firm valuation.
What is it decreases (PVGO falls)?
A company with a low market-book ratio typically has this kind of PVGO.
What is low or zero PVGO?
The horizon value can also be called this type of value, since it assumes stability.
What is terminal value?
Startups usually have a high PVGO because of this expectation.
What is rapid growth and future profitability?
This tech giant once dominated search engines before Google.
What is Yahoo?
When the market-book ratio equals 1, this means PVGO equals this value.
What is zero?
If a company has high earnings but a low stock price, this ratio will be low.
What is the P/E ratio?
The horizon value formula depends on these three key variables: earnings, discount rate, and this.
What is the growth rate (g)?
PVGO is usually positive when a company earns returns higher than this.
What is its cost of capital?
This streaming company had explosive PVGO growth during the pandemic.
What is Netflix?
Market-book ratios are most useful when comparing firms within this.
What is the same industry?
The “E” in the PVGO formula refers to this.
What is earnings per share (EPS)?
This concept ensures horizon value reflects sustainable, not temporary, growth.
What is long-term equilibrium growth?
A firm with growing PVGO usually reinvests profits instead of doing this.
What is paying large dividends?
This company once had one of the highest PVGOs in history during the dot-com bubble.
What is Amazon?
Negative PVGO implies firms should do this with excess capital.
What is pay dividends or repurchase shares?