Forward P/E: How Investors Think About Future Earnings
Forward P/E explained: what it is, when it helps, and why forward earnings estimates can be wrong. Learn to use forward P/E carefully as an investor.
What is forward P/E?
Forward P/E uses expected future earnings instead of trailing earnings. It can be helpful when a business is changing (growth, recovery, restructuring).
Why investors use it (and why it’s risky)
- Markets price the future, not the past
- Estimates can be overly optimistic
- Use scenarios and margin of safety thinking
Forward metrics can look cheap right before a downturn. Cross-check with balance sheet strength and cash flow.
Use it with intrinsic value
Forward multiples are one input. Compare price vs intrinsic value and validate with fundamentals.
FAQs
Is forward P/E better than trailing P/E?▼
It depends. Forward P/E can be useful during transitions, but it relies on estimates. Many investors look at both.
What’s the biggest mistake with forward P/E?▼
Treating analyst estimates as facts. Use a range of outcomes, not one number.
Related
Intrinsic Investor is for education and research only. Not financial advice.