Definition
The Forward Price to Earnings ratio analyzes the current stock price over analysts' estimated earnings per share. Investors utilize the Forward Price to Earnings ratio to gauge whether expected earnings will decrease or increase in the next earnings period.
Calculation
Forward PE Ratio = current stock price/estimated earnings per share for next earnings period
example: Tesla's current stock price is at $950 and the predicted EPS is $30, the forward P/E would be 31.67. This means that the stock is expected to trade at 31.67 times its price.
Why is this important?
The Forward P/E ratio is important because it indicates to investors that a stocks expected earnings may increase or decrease if compared to the current P/E ratio. If the Forward P/E is greater than the current P/E, it indicates a decrease in expected earnings and vice versa.