Definition: Earnins of companies are major driver of value of stock, thus earnings per share (EPS) is the main focus of analysts and investors. There are two alternative definitions of P/E: trailing P/E and leading P/E.
- A stock’s trailing P/E (current P/E) is its current market price divided by the last four quarters’ EPS.
- The leading P/E (forward or prospective P/E) is a stock’s current price divided by the nex year’s expected earnings.
When someone tries to compare stocks, he/she should apply the same P/E definition to all companies. Otherwise the P/Es are not comparable. Also, negative P/Es are not meaningful.