The forward P/E Ratio is similar to the standard price to earnings ratio, except that it uses estimated future earnings instead of past earnings.
While the normal P/E ratio looks at earnings over the previous 12 months, the forward P/E ratio looks at earnings over the next full year or next 12-month period.
For example, if a stock is trading at 200 dollars and predicted earnings for the next year are 10 dollars per share, then the forward P/E ratio is 20.
- A low forward PE ratio indicates that a stock is cheap relative to its future earnings.
- If the forward PE is lower than the normal (trailing) PE, that means earnings are expected to increase.
- This ratio relies on estimates and predictions, which are often wrong. It is not as accurate as the trailing PE ratio.
- Estimated next year's earnings are usually based on the average predictions of analysts that cover the stock.
Forward PE Calculator
How to calculate
Here's how to calculate the forward PE ratio:
- Find the company's current stock price.
- Find the stock's estimated earnings per share for the next year.
- Divide the stock price by the forecasted earnings per share.
Apple's stock price is $351. The predicted earnings per share for the next fiscal year are $14.86. This gives Apple a forward PE ratio of:
$351 / $14.86 = 23.62