Why a Low P/E Ratio Can Be an Illusion
A low trailing P/E is often an accounting echo, not a bargain. Honeywell shows a trailing P/E of 8 but a forward P/E of 22, because trailing earnings per share of about $28 include a business it spun off on June 29, 2026 while forward earnings of about $9.9 describe the smaller company that remains.
- The same gap shows up for insurers and Berkshire, whose reported profit swings with the value of their stock portfolios, and for companies with one-off gains.
- The quickest check is to compare trailing and forward P/E: a gap of more than 50% means something changed or was one-off.
This is educational analysis, not investment advice.
Why does Honeywell show an 8x P/E?
Honeywell's trailing P/E on this site, against a forward P/E of 22. Trailing earnings per share of about $28 compare with about $9.9 expected next, a gap that points to a changed company or one-off items.
| Measure | Honeywell (HON) | What it tells you |
|---|---|---|
| Price | $221.15 | Weekly data, October 23 to 24, 2026 |
| Trailing P/E | 8.0 | Implies trailing EPS near $27.6 |
| Forward P/E | 22.4 | Implies expected EPS near $9.9 |
| What changed | Honeywell Aerospace was spun off on June 29, 2026 | One Aerospace share for every two Honeywell shares held; the new company trades as HONA |
| Filters passed | 8 of 8 value filters | The low trailing P/E helps it pass |
Honeywell completed the spin-off of its aerospace business on June 29, 2026, and the remaining company now reports as a smaller business. A trailing P/E divides today's price by the last twelve months of earnings, which still include businesses that are gone, while a forward P/E divides by estimates for what is left. The exact reason for the trailing figure (spin-off accounting or a one-off gain) needs checking in Honeywell's own 10-Q.
Which other stocks have a trailing P/E far below the forward one?
| Stock | Trailing P/E | Forward P/E | Gap (forward / trailing) | Why it may happen |
|---|---|---|---|---|
| HON | 8.0 | 22.4 | 2.8x | Spin-off of aerospace in June 2026 |
| CINF | 8.2 | 18.9 | 2.3x | Insurer: reported profit includes swings in its stock portfolio |
| BRK.B | 13.6 | 24.3 | 1.8x | Reported profit includes unrealised gains on its stock holdings; forecasts use operating earnings |
| SPG | 14.8 | 30.1 | 2.0x | A real estate company: gains and property sales can lift trailing profit |
| MLM | 14.8 | 24.1 | 1.6x | Check for one-off gains or a one-time boost |
| ALL | 4.8 | 7.7 | 1.6x | Insurer: investment results and catastrophe losses move profit |
| EIX | 5.6 | 8.6 | 1.5x | A utility: check for one-time regulatory items |
| GEV | 23.1 | 37.4 | 1.6x | Check for one-time gains or fast earnings growth that the forward estimate does not include |
Forward P/E divided by trailing P/E. A ratio near 1 means the two agree; above 1.5 means trailing earnings look unusually high.
The reasons in the last column are the usual causes, not confirmed findings for each company: only Honeywell's spin-off is confirmed here, and Berkshire's and the insurers' accounting is general (US accounting rules put changes in the value of stock holdings in reported profit). Check each company's income statement before relying on the explanation.
What about stocks whose trailing P/E is far too high?
| Stock | Trailing P/E | Forward P/E | Gap (trailing / forward) |
|---|---|---|---|
| CRWD | 4490 | 170 | 26.4x |
| PANW | 946 | 88 | 10.8x |
| WAT | 269 | 30 | 9.0x |
| OMC | 58 | 7 | 8.6x |
| GM | 33 | 6 | 5.9x |
| EL | 215 | 29 | 7.5x |
The reverse gap is the other half of the trick: a trailing P/E in the hundreds usually means last year's profit was depressed by a one-off (a write-down, a merger cost or heavy investment), so the stock looks expensive on paper but is not. GAAP earnings can also be small because of stock-based pay and amortisation, as at CrowdStrike and Palo Alto, where the forward P/E is still high. Check the quarterly pattern before you decide either way.
How can you check a P/E before you trust it?
- Compare trailing and forward P/E. A gap of more than 50% in either direction means something changed or was one-off.
- Look at the last four quarters of EPS. One huge quarter usually explains a very low trailing P/E.
- Ask whether the business is the same one. Spin-offs, mergers and big sales change what the number describes.
- Check earnings quality. This site's Earnings Quality screener shows whether profit turns into cash.
- Use a second ratio. Free cash flow yield, price to book and price to sales are harder to distort, except for financials.
Our guide what is a good P/E ratio? covers the thresholds, and the Shiller CAPE ratio shows the multi-year version that smooths one-offs by design.
Sources
- Honeywell: Honeywell Technologies completes spin-off of Honeywell Aerospace (June 29, 2026): spin-off completion and ratio
- Honeywell on this site: trailing and forward P/E, ratios, October 23 to 24, 2026
Trailing P/E is from the screener data and forward P/E from the DCF inputs, both refreshed weekly, so the two can differ in timing. Implied EPS values are price divided by each P/E, not company figures. The causes of the gaps for companies other than Honeywell are general explanations, not verified findings. This is educational content, not investment advice.
The same trap applies to cash flow: Why bank and insurer free cash flow yields mislead
Low P/E FAQ
Is a low P/E ratio always a sign of a cheap stock?
No. A low trailing P/E can come from one-off gains, a spin-off, or accounting that includes investment gains, in which case earnings are not repeatable.
Why is Honeywell's trailing P/E so low?
Its trailing P/E is about 8 against a forward P/E of about 22. Trailing earnings still include the aerospace business spun off on June 29, 2026, while forward earnings describe the remaining company.
What is the difference between trailing and forward P/E?
Trailing P/E divides the price by the last twelve months of reported earnings. Forward P/E divides it by analyst estimates for the next twelve months.
Why do insurers and Berkshire show low P/Es?
Under US accounting, changes in the value of their stock holdings flow through reported profit, so a strong market year can inflate trailing earnings.
What should I check instead of P/E?
Compare trailing and forward P/E, read the last four quarters of EPS, and look at free cash flow yield, price to book and an earnings quality check.