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The P/E ratio represents the relationship between a company's current share price and its earnings per share (EPS). Investors typically encounter two types of P/E ratios: trailing twelve months (TTM), which reflects actual earnings from the past year, and forward P/E, based on the projected earnings by analysts. While the trailing P/E is grounded in past performance, the forward P/E hinges on estimates, making it potentially less reliable due to fluctuations in analyst expectations.
According to Erickson, while trailing P/E provides concrete data, forward P/E reflects speculative predictions that may not always manifest. Therefore, understanding both dimensions creates a fuller picture of a company's financial health and market position.