Forward P/E or trailing P/E?

The forward P/E is based on what the company is expected to earn a year in the future. And the trailing P/E is based on what the company earned in the previous year. The difference between a trailing and forward P/E can be dramatic.

Which P/E should you pay attention to? The answer is, both. It's especially important now to consider both because future earnings are so unpredictable.

Rather than trying to pick which P/E ratio to use, compare them with each other. If you see a big difference between the two, you might learn more about the company's valuation if you find out why the forward and trailing P/E are so different.

For instance, if you notice that a stock has a high double-digit trailing P/E and a low forward P/E, you know that analysts are predicting earnings to recover sharply, but investors aren't believing the estimates yet. In that situation, if the company delivers as analysts hope, there could be a nice upside for the stock.

Similarly, if a stock's trailing P/E is low but the forward P/E is high, it might be a clue that analysts are being extremely bearish about the company's future, which might be a warning to you. On the other hand, this situation might mean investors are being overly optimistic about a stock's future, and they could be in for a rude awakening.

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Barclays Plannig to Relocate??

An analyst report has renewed speculation among some investors that the British bank Barclays might leave London for New York.

The report, published by two UBS analysts titled “The first to leave?”, gives a list of reasons why there apparently is “little option for Barclays but to reconsider domicile.”

Executives of large British banks, including HSBC, Standard Chartered and Barclays, had been threatening to move their headquarters abroad ever since a government-appointed banking commission here hinted it would consider splitting investment and retail banking to make Britain’s financial sector more stable.

The warnings were widely seen as a tactic by the banks to scare the government into abandoning plans for stricter financial regulation. The chief executive of Barclays, Robert E. Diamond Jr., was among banking executives who recently declared their firms’ commitment to Britain.

“Concern over ‘too big to fail’ dominates the U.K. regulatory agenda but rather than Barclays being too big, it may well be that the U.K. is too small”

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