One of the most commonly cited valuation metrics for stocks is the price-to-earnings (P/E) ratio. It is calculated by dividing the current stock price by earnings per share (EPS). The EPS used in the denominator is typically the EPS in the preceding four quarters (trailing P/E) or the expected EPS over the next four quarters (forward P/E). Of the two, I prefer the forward P/E because it is forward looking. Sometimes, analysts will look further down the road, and calculate the expected P/E ratio for, say, three years in the future. Look Beyond P/E However, although it is perhaps the most well-known metric, P/E is not meaningful in some cases.
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