what does forward price to earnings reveal 
analysts like to consider the p e ratio as a price tag on earnings used to calculate a company s relative value based on its earnings in theory 1 of earnings should be worth the same across different companies but this is rarely the case in practice for instance if company a trades at 5 per share and company b at 10 per share the market values company b s earnings more this difference can be interpreted in various ways for example it might indicate that company b s earnings are overvalued or that company b s superior management and business model warrant a higher valuation the trailing p e ratio compares today s price against earnings for the past 12 months or the last fiscal year reflecting historical data in contrast the forward p e ratio uses earnings estimates to project the company s future value based on expected earnings for example if the current price of company b is 10 and earnings are expected to double to 2 next year the forward p e ratio would be 5x indicating the company is valued at half its current p e ratio a lower forward p e ratio compared to the current p e suggests analysts expect earnings to increase conversely a higher forward p e ratio indicates expectations of declining earnings forward p e vs trailing p eforward p e uses projected earnings per share while trailing p e relies on past performance by dividing the current share price by the total eps earnings over the past 12 months trailing p e is the most popular metric because it s objective is to assume that the company has reported earnings accurately some investors prefer trailing p e because they don t trust earnings estimates made by others however trailing p e has shortcomings namely that past performance doesn t guarantee future results investors may be better off focusing on future earnings power rather than past earnings another issue with trailing p e is that the eps number remains constant while stock prices fluctuate if a significant event causes the stock price to rise or fall dramatically the trailing p e may not accurately reflect these changes limitations of forward p esince forward p e relies on estimated future earnings it can be subject to miscalculation and analyst bias companies might underestimate earnings to beat future consensus estimates or overstate them and adjust later analysts estimates can also differ from company estimates adding to potential confusion that s one key reason forward p e ratios are often cited as indicators of a stock s value but studies show that trailing p e ratios are more reliable for predicting future performance if you use forward p e as the central basis of your investment thesis research the companies thoroughly updates to a company s guidance can significantly affect the forward p e possibly altering your investment perspective it s wise to use both forward and trailing p e ratios to form a more reliable assessment 