Forward price to earnings (forward P/E) is a measure of the price-to-earnings (P/E) ratio using forecasted-estimated-predicted earnings per share (after-tax net income). Analysts to the company itself determine the forecasted, or estimated, earnings. The forwardis used to compare a company’s current share price to its expected per-share .
The forward P/E is calculated using the current stock price over its “predicted” earnings per share. For example, if the stock price is 20 and the predicted EPS is 3, the predicted forward P/E would be 20/3 = 6.66
The current P/E ratio is calculated using today’s stock price against historical earnings per share for the last 12 months or the last fiscal year.
- If the forward P/E ratio is lower than the current P/E ratio, it means analysts are expecting earnings to increase;
- If the forward P/E is higher than the current P/E ratio, analysts expect a decrease in earnings.