Investing term
What is Forward P/E?
P/E using next-12-month earnings forecasts in the denominator instead of trailing earnings.
Forward P/E values a stock against analysts' forecast earnings for the next twelve months, rather than the past year's actual figures. It tries to price the company on where it's heading, which is useful for fast-growing firms — but it's only as good as the forecast. Optimistic estimates can make an expensive stock look reasonable until reality disappoints.
For example
A stock at 40× trailing earnings might be just 20× forward earnings if profits are expected to double — assuming that rosy forecast actually comes true.
Forward P/E is taught hands-on in Stage 15 — Valuation for Investors.
See the lesson →