Trailing or forward P/E — why do two "P/E" numbers disagree?

Look up one company on two screens and you may see two different P/E numbers — say 30 on one and 20 on another. Neither is wrong. They are measuring earnings from two different points in time.

Behind you versus in front of you

• Trailing P/E uses earnings already reported — usually the last twelve months (often labelled "TTM"). It is a fact: the profit actually happened. It is also old news, describing the business as it was.
• Forward P/E uses earnings analysts expect for the next twelve months or the next fiscal year. It is an estimate: it hasn't happened yet, and the estimate can be wrong. But it describes the business as it is expected to become.

For a growing company, forward earnings are larger than trailing earnings, so the forward P/E is the lower of the two. That is why our 30-versus-20 example points the way it does — same price, bigger expected earnings on the bottom, smaller ratio.

A worked example

Imagine a company at $60 a share. It earned $2 last year (trailing EPS) and analysts expect $3 next year (forward EPS).

• Trailing P/E = 60 ÷ 2 = 30.
• Forward P/E = 60 ÷ 3 = 20.

The price never moved. The gap between 30 and 20 is entirely the market pricing in expected growth. A wide gap between trailing and forward P/E is itself an observation worth noticing: it tells you how much growth the consensus is baking in.

The catch with forward

Forward P/E is only as good as the estimate under it. Estimates get revised — sometimes sharply — after a surprise result or a guidance change. A forward P/E that looks reasonable can jump the moment analysts cut their numbers, without the price moving at all. Treat forward multiples as a view of the future, and remember that views change. When you compare two companies, compare like with like: trailing against trailing, forward against forward.

Before reading the gap as growth, check that the two earnings figures are on the same basis. Trailing P/E divides by reported diluted EPS under GAAP or IFRS. Forward P/E divides by the consensus estimate, and for most US companies analysts forecast the adjusted figure the company guides to, with stock-based compensation and acquisition amortisation removed. Where those items are large, the forward EPS is bigger than the trailing one before any growth, and the trailing-to-forward gap overstates what the market expects. Compare the trailing diluted EPS against the sum of the last four quarters' reported "actual" EPS, the adjusted figure analysts score against: the difference is the basis gap, and only what remains above it is growth.

In the data

Both numbers are published side by side for Apple:

The forward P/E rests on a consensus that analysts revise, so it can move on a day when the price did not: the bottom of the fraction changed, not the top. The trailing side goes stale in a different way, a little more each week since the last reported quarter.

Try it now

1. Read the trailing and the forward P/E in the table above. Which is lower, and what does that tell you about the earnings the consensus expects?
2. Now look at the estimates the forward figure rests on:

Divide the trailing EPS into next year's EPS estimate to see the expected growth on its own. Then reconstruct the forward P/E yourself: trailing P/E × trailing EPS gives you an implied price, and that price ÷ next year's estimate should land near the published forward P/E. 3. The size of the trailing-to-forward gap is your read on how much growth the market expects — record it as an observation, not a forecast of your own. 4. Then date both halves before you quote either. The most recent quarter is the last row of this table:

Count the weeks from that date to the date on the table — that is the age of the trailing number. The forward one carries no such date, and the section above says what moves it on a day the price does not.