The P/E ratio is a key indicator used by investors and analysts to assess stock valuation and market sentiment. It helps compare companies within the same industry, providing insights into investment opportunities. A rising P/E ratio often reflects investor confidence and growth potential, while a declining P/E ratio may signal economic uncertainty or declining profitability. The P/E ratio also aids in determining whether a stock is suitable for value or growth investing. However, it should be used alongside other financial metrics for a comprehensive valuation.