Trailing vs. Forward P/E Ratios
Understanding the difference between trailing PE and forward P/E is essential for more accurate valuation:
Trailing P/E
- Definition: Based on the last 12 months of earnings.
- Use Case: Useful for historical performance analysis.
Forward P/E
- Definition: Based on projected earnings for the next 12 months.
- Use Case: Better for assessing future growth potential.
Current Trends: The S&P 500's forward P/E ratio is currently 20.3, higher than its historical averages, indicating increased expectations due to technological advancements like AI.
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It was a big week for tech stocks with four of the MAGS 7 members reporting quarterly results. These are some of the most powerful and expensive companies in the world. As part of our tech investing playbook, we want to talk about how investors can understand whether a tech stock is worth the price.
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