Why is Yahoo!'s (YHOO) forward P/E ratio higher than its current (ttm) P/E ratio?

Question

As of today, according to Y!Finance, YHOO's forward P/E (49.12) is higher than its current P/E (36.73), a relationship that I believe has held for at least a year. Most growth companies' forward P/Es are lower than their trailing P/Es. Why is Yahoo!'s higher?

The Y!Finance glossary ( http://biz.yahoo.com/f/g/ff.html ) defines "forward looking multiple" (is this the same as forward P/E?) as an "expression for a P/E ratio that is based on forward (expected) earnings rather than on trailing earnings". Under this definition, it would seem that the only possible explanations for a higher forward P/E are: (1) Yahoo!'s earnings are projected to go down, or (2) the number of outstanding shares of Yahoo! stock is expected to go up.

Other possible explanations include: (3) Y!Finance data is incorrect, or (4) the definition of forward P/E is different than above.

Which of these is correct, or is there some other explanation altogether?

Answer 1

You got it. Projected earnings are less than trailing.

FYI: P/Es have historically had almost no correlation to the direction of the share price. P/Ss have had very strong correlation with future share prices.

Answer 2

All of the above.

Yahoo's a business like any other, so it wants its investors and consumers to continue to use its services and encourage growth even if it anticipates a slump.

So your first reason fits since it means Yahoo thinks it won't make as much as last quarter. This forward p/e ratio is suggested to make investors believe Yahoo's a safe bet in the future.

Your second reason fits since Yahoo thinks more shares will be sold than bought since its stock price should go down.

#3 works because Yahoo could just be playing the numbers and #4 works because Yahoo is making things up.

Honestly, I don't like investing in web stocks (or stocks in general) because their fundamentals always need to checked up on every week (or everyday if u really wanna be on top of things). They just take up too much attention for the cost/benefit potential. Loans, bonds, real estate, and businesses are the better way to go since you can sit down with the owner or broker of an institution and get a secure feel for what's really going on.

Answer 3

In an ideal situation a high ratio would be better, because it would signify that the profitws are growing fast. But there are many other factors to take into consideration.