Forward P/E Ratio
P/E ratio using estimated future earnings instead of trailing earnings.
Definition
The forward P/E ratio uses analyst consensus earnings estimates for the next twelve months rather than actual trailing earnings. It provides a forward-looking valuation perspective and is useful for companies with rapidly changing earnings trajectories.
Formula
Forward P/E = Stock Price / Estimated Future EPS
Why It Matters
When comparing banks headed in different directions—one growing and one shrinking—the forward P/E removes the backward-looking bias and shows what investors are really paying for future earnings potential.