Glossary
Forward P/E
Share price divided by analysts' expected earnings per share for the next 12 months or fiscal year.
On this page
The forward P/E ratio divides a stock's current price by the earnings per share expected over the next twelve months or the next fiscal year, usually the analyst consensus estimate. It tells you how many dollars investors are paying for each dollar of profit they expect, rather than profit already reported. Markets price the future, so the forward multiple is the one most often quoted for indexes and fast-changing companies.
How it works
Data providers differ: some use next-twelve-months (NTM) blends of two fiscal years, some the current fiscal year, some the next. Check which one a quoted number uses before comparing.
What to watch for
- Estimates are forecasts. Consensus numbers often start high and drift down through the year, and they can be wrong by a wide margin around turning points.
- Adjusted earnings. Analysts typically forecast adjusted, non-GAAP EPS, which excludes items such as stock compensation or amortization. A forward P/E on adjusted EPS will look cheaper than one on GAAP EPS.
- Negative or tiny earnings make the ratio meaningless; use sales or cash-flow multiples instead.
- Growth context. Comparing forward P/Es without growth rates is incomplete, which is why some investors use the PEG ratio.