Forward non-GAAP price to earnings
Forward non-GAAP price to earnings (Forward non-GAAP P/E) is a financial metric that evaluates a company's current stock price relative to its predicted non-GAAP earnings per share (EPS) for the upcoming fiscal year. Non-GAAP earnings exclude certain items that may not reflect the company's core operating performance, such as one-time charges or gains, providing a clearer picture of ongoing profitability. This ratio helps investors assess the valuation of a company based on expected future performance rather than historical earnings.
Forward non-GAAP price to earnings = Closing price / EPS forecast
The EPS forecast is the consensus estimate of analysts from FactSet, predicting the company's EPS for the next fiscal year. It is always made at the end of the current financial year, which means that at the beginning of the fiscal year, it will be a full-year forecast, and in the last quarter, it will be based on the actual values of the three completed quarters, plus the forecast for the 4th quarter.
A lower forward non-GAAP P/E ratio may indicate that a stock is undervalued relative to its expected future earnings, suggesting a potential investment opportunity. Conversely, a high ratio could imply that the stock is overvalued or that investors are anticipating significant growth in earnings. By focusing on non-GAAP earnings, this metric allows investors to evaluate a company's valuation while accounting for its core operational performance.