The P/E ratio reflects the market's expectation of a company's future earnings growth. A higher P/E ratio might indicate that the market has higher expectations for a company's future earnings growth, whereas a lower P/E might indicate lower expected growth or potentially undervaluation.

The P/E is commonly used in industries with stable and predictable earnings such as consumer goods, utilities, or established tech companies.

The P/E ratio focuses solely on equity, ignoring the company's debt. This can be misleading for companies with significant debt, as it doesn't reflect the company's total financing structure and risk.

The P/E ratio is not applicable for companies that do not have positive earnings. For startups or companies going through temporary losses, the P/E ratio offers no insight.