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Definition: The forward P/E is a form of the P/E ratio. The forward P/E is calculated by taking the current price of the stock and dividing it by the forecasted year end earnings. This is used for valuation purposes.
TeenAnalyst Advice: The forward P/E is looked at by investors to determine what a "fair" price for the stock is. If you look up a company's P/E ratio, they'll give you the trailing ratio based on last year's number. The forward ratio takes this year's earnings into consideration.
For example, a $30 stock might look overvalued at 30 times last year's earnings. But if their earnings double this year, the stock will only be 15 times this year's earnings. So perhaps it might be a good investment.
You can also use this for future years, although it's an arbitrary figure.
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