hello everyone hi welcome to the channel of WallStreetmojo friends will be able
to learn a topic a concept that is on trailing PE was his forward B so what
exactly is trailing PE what exactly is the forward be that's what we are going
to discuss over here we'll start with the trailing PV okay now trailing PE is
where we use the historical earnings remember one thing historical earning
per share in the denominator so you can say EPS and trailing PE ratio this
basically the formula you know it's something said sort of it's like this is
equal to its price per share divided by the EPS over the previous 12 months okay
so let's take one trailing PE example and understand let's calculate the
trailing PE of Amazon see Amazon current share price Amazon current share
price that is p0 is 1586.51 as on this is as on 20th march 2018
okay now let's say the earning per share faster one year okay
based on various quarters and all let's say the EPS TTM it is known as for
trailing PE is a let's say $4.576 okay so in that scenario
what is going to be a trailing PE because this EPS is for your 12 months okay so
it's p 0 divided by your EPS that will give you 346.7X
and now that is a PE DDM so this is your trailing PE now the next thing
that we are going to discuss is the forward what is the forward PE ratio so
the forward PE ratio is basically the price per share divided by the
forecasted it is a price per share divided by the forecasted EPS right
let's take another example for forward would be let's say the same current
price is 1586.51 and let's
say the EPS for the December 2018 and year ending December 19 is eight point
$8.31 and $15.39 so the forward PE ratio for 2018 is
going to be your price divided by December 2018 the EPS that is a forward
PE and in case of December 19 it's going to be 103.08X
so what exactly is the difference between the trailing
and the forward
PE and over here we'll write as the forward PE so as you can you know note
that you know the key difference between the two is the EPS that has been used
now for trailing PE for trailing PE we use the historical EPS what do we use
historical EPS whereas for the for T we use the EPS that has been forecasted
right now trailing PE versus forward PE example that we are going to take C
trailing theory uses the historical EPS while the forward PE uses the
forecaster EPS let's look at another example to calculate the trailing verses
forward PE now there's this company called AAA which has the 12 months
EPS offer $10 ten and its current market price that is p0 is a $234 so the
trailing 12 months EPS is going to be $234 price divided by earnings that's
23.4X likewise let's calculate the forward PE returning of
AAA company a company is AAA 2016 let's say estimate estimated EPS is
let's say $11 and the current price p0 is $234 so the forward PE earning ratio
the forward PE ratio formula is going to be $234 divided by the
share price that will give you 21.3 X now what are
the important points that one needs to note while in interpreting or
calculating trading versus forward PE ratio see some of the things that you
need to consider regarding trailing PE ratio versus forward PE ratio is that
you know if the EPS is expected to grow okay then the forward PE ratio will be
lower than the historical or the trailing PE you can say or the trailing
PE ratio now from the example that we learned you know there is an increase in
the EPS and you know hence the forward PE ratio is lower than the trailing PE
ratio second on the other hand if the EPS is expected to decrease then you
will note that the forward PE ratio okay will be higher or greater than the
trailing PE ratio now you need to note that the forward PE only forecast the
forward PE only forecast the EPS of 2016 or maybe no 2017 whereas the stock price
will reflect the earning per earning growth prospects for in I mean
far into the future state but that's one big thing that you need to consider
fourth one should not only compare the trailing ratio trailing ratio for the
valuation comparison between the two companies but also look at the forward
PE also forward PE ratio or two to focus on the relative value whether the
PE difference reflects the company's long term growth prospects and the financial
stability
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