What is Forward P/E?
In short
Price ÷ analysts' EPS estimate for the NEXT 12 months (or year). Trailing P/E uses the actual EPS of the past 12 months instead.
Also known as: trailing P/E, TTM
Forward P/E divides the share price by analysts' EPS estimate for the next 12 months (or the next fiscal year). The ordinary, trailing P/E uses the actual EPS of the past 12 months (TTM) instead.
Forward P/E = Price ÷ Next EPS estimate
Why it is used
The market prices the future. For a company with fast-growing earnings the trailing P/E looks very high, while the forward P/E accounts for the expected growth. For a company whose earnings dipped temporarily, the forward figure can also be fairer.
The main drawback: it is a forecast
Forward EPS is not an actual number but a consensus estimate. Analysts are often too optimistic, especially further out. If the estimate is missed, a "cheap" forward P/E turns out not to have been cheap. Estimates also keep changing — today's forward P/E can differ a month from now even if the price does not move.
How to read it properly
Look at trailing and forward P/E side by side: the gap shows how much growth the market expects. Another growth-adjusted metric is PEG.
The price is the same. Only the EPS it is divided by changes: last year's (actual) or a future one (an analyst estimate — which can be wrong).
Example
A hypothetical stock trades at $60.
- Past 12 months' EPS: $2.00 → trailing P/E = 60 ÷ 2 = 30
- Next year's EPS estimate: $2.50 → forward P/E = 60 ÷ 2.5 = 24
The market expects 25% earnings growth ($2.00 → $2.50). On a forward basis the stock looks "cheaper".
But if actual EPS stays at $2.00 by year-end, the real P/E at $60 is 30 again. In such cases the market often cuts the multiple as well — if the P/E drops to 24, the price becomes $2.00 × 24 = $48 (−20%).
Mistakes and tips
Always look at forward P/E together with trailing P/E — a big gap means big expectations.
Watch which way estimates are being revised: falling estimates are a warning sign.
In cyclical companies (autos, metals) a low P/E at peak earnings can be deceptive.
Frequently asked questions
- Which is better, forward P/E or trailing P/E?
- You need both: trailing is based on actual numbers, forward reflects expectations. The gap between them shows how much growth is already priced in.
- Does a low forward P/E mean a stock is cheap?
- Not necessarily. The estimate may prove wrong, or the market may be pricing it low on purpose because the business is deteriorating.
Learn it in the Academy
This term is covered with hands-on examples and a quiz in these lessons of the interactive course.
Try the theory without risk
Open a free account: demo trading with a $10,000 virtual balance, a trading journal, calculators and a step-by-step course.