Forward P/E
Values a company using expected earnings over the next 12 months instead of reported historical earnings.
Formula
Forward P/E = Share Price / Forecast EPS
Worked exampleA $120 share price divided by forecast EPS of $8 gives a forward P/E of 15x.
Calculation steps
- Use the current share price: $120.
- Obtain a consistent consensus or company forecast EPS: $8.
- Divide $120 by $8 to get 15x.
How to interpret it
A forward P/E below trailing P/E implies expected earnings growth, but the result is only as reliable as the forecast.
Industry context
Forecast visibility is usually better for stable businesses than for commodity, early-stage, or highly cyclical companies.
Common mistakes
- Do not treat analyst estimates as guaranteed.
- Use the same forecast horizon when comparing companies.
- Watch for estimate revisions after earnings reports.