Forward Earnings
What It Is:
Forward earnings are the profits a company (or companies) expect to generate during a future period of time.
How It Works/Example:
Companies and/or analysts calculate forward earnings using a variety of techniques that generally involve a review of past earnings performance and market conditions as well as a prognostication about the future direction of the economy and/or stock market.
Why It Matters:
Forward earnings are used to calculate the forward price-to-earnings ratio (P/E), an oft-cited metric in stock valuation. Some companies closely manage projections of their forward earnings, sometimes by working closely with analysts that cover their stock. Always keep in mind that forward earnings are estimates, and they should not be used exclusively when valuing stocks.
Undervalued describes a security for which the market price is considered too low for its fundamentals. Some metrics used to evaluate whether a security is undervalued are P/E ratio, growth potential, balance sheet health, etc. It is the opposite of overvalued.
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Cached on May 23, 2013, 1:01 am