0

From my understanding, F1/F2 P/E is calculated using forward estimated EPS.

And It seems to be impossible to predict future price (otherwise everyone just follow the Est. price)

However, if it's using current price as numerator, it seems impractical

because share price will propably move a lot and the F1 P/E will not be accurate anyway six months later, assuming EPS is correctly predicted.

So I'm a bit confused about interpreting forward P/E and hopefully get some clarification, thanks.

2
  • What do you mean by F1, F2? These seem like Excel cells though there isn't a spreadsheet here.
    – JB King
    Apr 27 '15 at 16:52
  • 1
    F1=Forward 1 fiscal year, just like EPS F0(past)/F1(current fiscal yr)/F2, in PE i guess the case is ttm/F1/F2 Apr 27 '15 at 16:57
1

generally Forward P/E is computed as current price / forward earnings. The rationale behind this is that buying the stock costs you the current price, and it gives you a claim on the future earnings.

1

P/E can use various estimates in its calculation as one could speculate about future P/E rations and thus could determine a future valuation if one is prepared to say that the P/E should be X for a company. Course it is worth noting that if a company isn't generating positive earnings this can be a less than useful tool, e.g. Amazon in the 1990s lost money every quarter and thus would have had a N/A for a P/E.

PEG would use P/E and earnings growth as a way to see if a stock is overvalued based on projected growth. If a company has a high P/E but has a high earnings growth rate then that may prove to be worth it. By using the growth rate, one can get a better idea of the context to that figure.

Another way to gain context on P/E would be to look at industry averages that would often be found on Yahoo! Finance and other sites.

Your Answer

By clicking “Post Your Answer”, you agree to our terms of service, privacy policy and cookie policy

Not the answer you're looking for? Browse other questions tagged or ask your own question.