Investology > PE/Fwd PE

PE/Fwd PE

P/E Ratio (Price-to-Earnings) compares a company's current stock price to its earnings per share, while Forward P/E uses expected future earnings instead of historical results.

P/E Ratio / Forward P/E Ratio

P/E Ratio (Price-to-Earnings) compares a company’s current stock price to its earnings per share, while Forward P/E uses expected future earnings instead of historical results.

Think of P/E as looking in the rearview mirror and Forward P/E as looking through the windshield – one tells you what you paid for past performance, the other reveals what you’re paying for future expectations. Smart investors check both views.

P/E Ratio = Current Stock Price / Earnings per Share (Last 12 Months)
Forward P/E = Current Stock Price / Estimated Earnings per Share (Next 12 Months)

Why P/E and Forward P/E Matter in Stock Analysis:

  • Valuation Baseline: P/E shows whether you’re paying $10 or $100 for every dollar of actual earnings – the fundamental “am I overpaying?” metric that every investor needs.
  • Growth vs. Value Indicator: High P/E stocks (30+) suggest growth expectations or overvaluation, while low P/E stocks (under 15) might signal value opportunities or troubled businesses.
  • Future vs. Past Comparison: The gap between P/E and Forward P/E reveals market expectations – shrinking Forward P/E suggests anticipated earnings growth, while expanding Forward P/E signals trouble ahead.
  • Sector Benchmarking: Different industries have different “normal” P/E ranges – tech typically trades at 25-40x while banks hover around 10-15x, making peer comparisons essential.

Example: Amazon (NASDAQ: AMZN) trades at $175 with trailing earnings of $3.50 (P/E of 50) but expected earnings of $7.00 next year (Forward P/E of 25). That dramatic compression suggests the market anticipates strong earnings acceleration – investors are betting on the future, not the past.

Bottom Line: P/E shows what you paid for yesterday’s results, Forward P/E reveals what you’re paying for tomorrow’s promise – together they help investors distinguish between justified optimism and dangerous speculation.