Valuation
Forward P/E
Price divided by the earnings analysts expect next year, rather than last year’s actual earnings.
How it works
Forward P/E is more relevant in principle, because you own a company’s future profits and not its past ones. It is also an estimate, with all that implies.
The gap between trailing and forward P/E tells you what growth the market is assuming. A much lower forward figure means large expected growth is already in the price.
Where it misleads people
Analyst estimates are systematically optimistic, and most so at the start of the year and for the companies with the most enthusiastic followings. A cheap forward P/E built on a forecast nobody hits is not cheap.
Related terms
- P/E ratioThe share price divided by earnings per share — roughly, how many years of current profit you are paying.
- Consensus estimateThe average of analysts’ forecasts for a company’s revenue or earnings.
- Earnings revisionAnalysts changing their forecasts for a company’s future earnings.
- Earnings per shareNet income divided by the number of shares — the profit attributable to each share you own.
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Educational reference only. Nothing here is investment advice or a recommendation to buy or sell anything, and tax treatment depends on your own circumstances and the country you are in.