Is the PE ratio from the trailing 12 months more important than the one from the most recent quarter?

Answer 1

In general, yes, because it's more representative. But the current PE is important also, since that's the price you're buying at, if you decide to buy.

Answer 2

Yes, because many businesses are seasonal. There may be a lot more variation in quarterly P/E than an annual P/E.

However, in the end, P/E can be a relatively meaning statistic on its own. It should be used in conjunction with other indicators. A high P/E may just mean that the market has high expectations for a stock. Many high-growth stocks will automatically have high P/E ratios, because the market is willing to pay a premium for the expectation of higher earnings.

The PEG (P/E to growth) ratio tries to adjust for this, by expressing the P/E ratio in terms of the growth rate of the stock. Some studies have shown good results in using the forward P/E against the 5-year expected growth rate -- but that information is only available for stocks that have analyst coverage. But PEG should not be used on its own either -- it just gives the P/E ratio a little more context.

Answer 3

It could be more important if the current quarter reflects seaonal fluctuations. Be careful with forward 12 month PE's because they are based on estimates. I'd suggest you look at trailing 12 months, current quarter extrapolated to one year and forecast 12 months and then use your judgement.