What Is Forward P/E?
Forward P/E is a P/E ratio that uses the profit a company is expected to make next year, instead of last year's profit. It looks ahead rather than back.
How forward P/E is calculated
A share costs $100. Analysts expect it to earn $5 per share next year. The forward P/E is 20. The expected profit per share is the expected EPS.
Forward P/E vs trailing P/E
Trailing P/E uses real profit from the last 12 months. Forward P/E uses a guess. For a fast-growing company, the forward P/E is usually lower, because profit is expected to rise. For a shrinking company, it can be higher than the trailing P/E.
What is a good forward P/E?
Like the normal P/E, there is no single good number. Compare it with similar companies and with the company's own history. A forward P/E far below the trailing P/E means analysts expect strong growth. Ask whether that growth is realistic.
The big risk
Forecasts are often wrong. If profit comes in lower than expected, the real P/E turns out higher than it looked, and the price can fall. Treat forward P/E as a hint, not a fact.
See it in real companies
Open a company to see what it sells and how it makes money.