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Morgan Stanley Report Finds Investors May Be Overpaying for Future Growth
On June 20, Morgan Stanley released a research note that sounded a cautionary tone for equity investors: the market may be over‑valuing the promise of future growth.
The Counterpoint Global Insights team argues that stocks priced with lofty expectations for future earnings—captured by the present value of growth opportunities (PVGO)—have historically delivered weaker total shareholder returns (TSR) than those priced with more modest growth assumptions.
In its report, Opportunities and Expectations: The Present Value of Growth Opportunities in Valuation, the firm breaks a company’s market price into two parts: the value of its current earnings and the value of its future growth opportunities. PVGO represents the option to invest in projects that will add earnings over time. A higher PVGO percentage signals that investors are betting on a company’s ability to generate value beyond its existing operations.
Using a sample of U.S. public companies with market capitalisations of at least $1 billion from 1990 to 2024, Morgan Stanley divided stocks into quintiles based on their PVGO percentage. The five‑year median TSR for the lowest‑PVGO quintile was 8.7 percent, compared with 5.0 percent for the highest‑PVGO quintile. The return spread was positive in roughly 90 percent of the years examined and averaged 2.6 percentage points over the full period.
At the index level, the report notes that the S&P 500’s valuation is composed of about 35 percent growth opportunities and 65 percent current earnings. By the end of 2025, the market’s PVGO measure was “well above the average,” indicating elevated expectations for future value creation. The study found that periods of high PVGO were followed by weaker long‑term returns, while lower PVGO periods were associated with higher subsequent TSR.
The research also compared PVGO to the traditional value‑investing approach based on price‑to‑book (P/B) ratios. The authors contend that the value factor has become less effective in recent decades as intangible assets have risen in importance. According to the report, the PVGO percentage delivers higher and more consistent returns, with an average five‑year return 230 basis points above that of the value factor.
The findings suggest that PVGO can serve as a useful complement to conventional valuation tools, helping investors assess whether market expectations for future growth are justified. The report does not recommend abandoning value investing altogether but encourages a more nuanced view that incorporates both current earnings and growth prospects.
These insights are especially relevant for investors navigating a market environment where high growth expectations have become common. By highlighting the historical performance gap between high‑ and low‑PVGO stocks, Morgan Stanley’s analysis offers a data‑driven perspective on the potential costs of overvaluing future growth.
The report was published on June 20 2026 and is part of Morgan Stanley’s ongoing effort to refine equity valuation models and support long‑term investment strategies.
The Counterpoint Global Insights team argues that stocks priced with lofty expectations for future earnings—captured by the present value of growth opportunities (PVGO)—have historically delivered weaker total shareholder returns (TSR) than those priced with more modest growth assumptions.
In its report, Opportunities and Expectations: The Present Value of Growth Opportunities in Valuation, the firm breaks a company’s market price into two parts: the value of its current earnings and the value of its future growth opportunities. PVGO represents the option to invest in projects that will add earnings over time. A higher PVGO percentage signals that investors are betting on a company’s ability to generate value beyond its existing operations.
Using a sample of U.S. public companies with market capitalisations of at least $1 billion from 1990 to 2024, Morgan Stanley divided stocks into quintiles based on their PVGO percentage. The five‑year median TSR for the lowest‑PVGO quintile was 8.7 percent, compared with 5.0 percent for the highest‑PVGO quintile. The return spread was positive in roughly 90 percent of the years examined and averaged 2.6 percentage points over the full period.
At the index level, the report notes that the S&P 500’s valuation is composed of about 35 percent growth opportunities and 65 percent current earnings. By the end of 2025, the market’s PVGO measure was “well above the average,” indicating elevated expectations for future value creation. The study found that periods of high PVGO were followed by weaker long‑term returns, while lower PVGO periods were associated with higher subsequent TSR.
The research also compared PVGO to the traditional value‑investing approach based on price‑to‑book (P/B) ratios. The authors contend that the value factor has become less effective in recent decades as intangible assets have risen in importance. According to the report, the PVGO percentage delivers higher and more consistent returns, with an average five‑year return 230 basis points above that of the value factor.
The findings suggest that PVGO can serve as a useful complement to conventional valuation tools, helping investors assess whether market expectations for future growth are justified. The report does not recommend abandoning value investing altogether but encourages a more nuanced view that incorporates both current earnings and growth prospects.
These insights are especially relevant for investors navigating a market environment where high growth expectations have become common. By highlighting the historical performance gap between high‑ and low‑PVGO stocks, Morgan Stanley’s analysis offers a data‑driven perspective on the potential costs of overvaluing future growth.
The report was published on June 20 2026 and is part of Morgan Stanley’s ongoing effort to refine equity valuation models and support long‑term investment strategies.
