Forward p/e

[fundjunkie]

Hi,
Can someone clarify what forward p/e means please? I assume it means p/e ratio based on anticipated earnings versus the current stock price. Is that correct or is the calculation done differently?

Anyway, I assume the lower a company's forward p/e is the better? Am I right in thinking that forward p/e is a good gauge for buying a stock?

All help kindly appreciated,
D

 

[Forest]

Hi,
Your calculation is right. As to whether a low forward PE is good value, this could depend on a number of factors. A major factor is the expected growth in company earnings. The PE can be lower than market or sector average because the company's projected growth rate is lower than the average - for example, if you're looking at a forward p/e one year out, but the company is expected to generate static earnings for many years, the p/e may be low, but the share may still not be good value. If on the other hand the share has been underpriced by the market, the low p/e could be an indicator of good value.

Hope this helps.

 

[RogerM]

The forward p/e is a very crude tool. It's generally regarded as low if it is lower than the growth rate, so for a company expected to grow it's earnings by 10% in the next 12 months, a forward p/e of 10 or less may be regarded by some as good value. Remember though that some sectors have traditionally always traded on a low p/e, so the forward p/e of the stock you are looking at relative to the p/e of it's sector is also relevant.

For instance, Jarvis (JRVS) had a forward p/e of 8.8 at the end of 2002 which was low when measured against both the market and the sector. Price was £2.84. Was that cheap? If so it is cheaper now with a forward p/e of 4.75 and a price of £1.84. Doesn't necessarily make it a buy tho'. Particularly as I've just noticed that it's down 47 points today - about 26% - to £1.30.

 

[PhilHughes]

P/E Ratio

Could someone tell me where i can find (on the net) the sector P/E ratio's, i often use digitallook for such info, but can't seem to find the sector P/E's

Thanks

Phil

 

[desfry]

Only source of sector P/Es that I know of is the Financial Times Newspaper.
Please post here if anyone knows of an online source.
Des