Glossary · Valuation
Forward P/E
Forward P/E swaps past earnings for the consensus estimate of earnings over the next twelve months. It answers the question: if the analysts' forecasts are right, is today's price expensive?
How to read it
For a company whose earnings are growing quickly, forward P/E is noticeably lower than TTM P/E, and the gap between the two is the amount of growth the market expects.
A forward P/E that is higher than the TTM P/E means analysts expect earnings to decline.
Forward P/E is the fairer measure for comparing growth stocks, because it already bakes in the coming year's growth.
Common pitfalls
- The denominator is a forecast. Analyst estimates tend to be too optimistic at the top of a cycle, which makes the forward P/E look cheaper than it really is.
On FinDog
The data strip at the top of each stock page shows both P/E (TTM) and forward P/E. Forward P/E is based on consensus earnings estimates for the next twelve months.
Open the Screener →Related terms
- P/E RatioThe P/E ratio is the share price divided by earnings per share, which is the same as market cap divided by net income. It tells you how many years of earnings at the current level it would take to earn back the purchase price. TTM means the calculation uses trailing-twelve-month earnings.
- Consensus EstimateThe consensus estimate is the average (or median) of the forecasts that sell-side analysts covering a company have made for metrics such as revenue and EPS. The market uses it as the baseline for deciding whether a report was "good."
- PEG RatioThe PEG ratio is the P/E ratio divided by the earnings growth rate (expressed as a percentage). It tries to answer whether a given P/E is reasonable once growth is taken into account. By convention, a PEG around 1 is considered fair and below 1 is on the cheap side.
Glossary entries are for investor education only and are not investment advice. About & Methodology · Disclaimer