Investors use the PE Ratio to gauge market expectations of a company and see how relatively expensive companies are compared to their peers.
PE Ratio = Current Price / Earnings Per Share
PE ratios are one of the most common ways to gauge market expectations. Higher PE Ratios are common among high-growth companies as investors are willing to pay a premium now to own a part of that company's future earnings.
Lower PE Ratios are more common stable, sustainable companies growing slower, which have more of a value appeal. Turbulent companies with limited growth or poor investor sentiment tend toward low PE Ratios.