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Forward P/E Ratio

Forward P/E Ratio

Parent term
Valuation

The Forward P/E Ratio compares today's prices with an estimate of next year's earnings

  • a high forward p/e suggests that stocks are expensive



Forward P/E Ratio Criticisms

  • Tends to be a poor gauge of market prices
  • The forward P/E is based on estimates of future earnings.  Why pay for something that is an estimate vs. something known (historical earnings)
  • Earnings tend to be cyclical. At the end of cycles forward earnings estimates may be way off if instead earnings drop

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