someoftheP/EratiosforGoogleinNovember 2005 using
different estimates of earnings per share.
FIGURE 7.1Google—P/E Ratios in November 2005
Notonlycanthesevariantsonearningsyieldvastlydifferent
valuesfortheprice-earningsratio,buttheonethatgetsused
byanalystsdependsontheirbiases.Forinstance,inperiods
of rising earnings, the forward P/E will yield consistently
lower valuesthan thetrailing P/E, which, in turn, willbe
lowerthanthecurrentP/E.Abullishanalystwilltendtouse
theforwardP/Etomakethecasethatthestockistradingata
lowmultipleofearnings,whileabearishanalystwillfocuson
thecurrentPEtomakethecasethatthemultipleistoohigh.
Thefirststepwhendiscussingavaluationbasedonamultiple
istoensurethateveryoneinthediscussionisusingthesame
definition for that multiple.