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Secondly, when an analyst starts talking about "forward PE", I immediately regard them as a retarted moran.

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Since the value of a share of stock is at the very least highly dependent on future earnings why is an analyst that discusses "forward PE" (i.e. future earnings) a moron?


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While this is not that far from the truth, it is still wrong. Stock prices are based on future free cash flows, not future earnings. This may sound trival to some, but it's not.

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We can quibble about what "at the very least highly dependent on" vs. "based on" but to me they do mean something different thus I used "at the very least highly dependent on" vs. "based on." You more or less imply that they're synonomous but they're not in my mind.


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By the way, the analyst is sort of a moron anyway if he valued the firm based on any type of P/E (I haven't read this report and I don't even know what analyst we're talking about, just so we're clear, this is just a general statement).

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I don't agree with this at all. Future earning imply something about future free cash flow if that's how you prefer to value equity.

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Why a completely flawed metric has become the gold standard for people that know just enough about finance to hurt themselves, I don't know, but I sure get a kick out of it.

If anyone's wondering why I call P/E a "completely flawed metric", you should go compare a bunch of companies in similar businesses with varying debt levels. You will almost always "determine" that the higher levered companies are the most undervalued. P/E uses a firm value and compares it to an equity cash flow; that makes companies with excess debt appear deceptively "cheap".

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What studies back this up out of curiosity? It should be easy to identify such companies and compile data on investment returns.