Because most companies are increasing earnings from year to year, the forward P/E is almost always lower than the trailing P/E, sometimes markedly so for firms that are increasing earnings at a very rapid clip. Unfortunately, estimates of future earnings by Wall Street analysts—the consensus numbers that you often read about—are consistently too optimistic. As a result, buying a stock because its forward P/E is low means counting on that future E to materialize in its entirety, and that’s usually not the case.
