The PE ratio is defined as the ratio of Market Value per Share to Earnings per Share. It is widely used to find quality bargains in current stock prices.
For e.g. you may find the same quality drink at different prices in different places or a particular vegetable being sold at different rates at different vendors, PE plays a role similar to determining the most profitable stocks for investment.
For, e.g., let us consider two companies operating in the same sector, company A and company B. Say, company A has a PE of 27 while B has that of 39. In the considered case, A is a better buy as it has a lower PE.
A low PE implies that market price has not increased much while a high PE would be a representative of higher growth prospects.
It is necessary and helpful to read and understand the PE ratio of the stock as a high PE ratio would mean an over-priced stock while low PE ratio is representative of unknown market growth potential and hence such stocks make a good bargain.
If a stock is over-priced, i.e. price is much higher than its actual growth potential; such stocks are more liable to a drastic fall. Hence PE ratio is a very useful tool you can employ to decide in investing/buying a stock at lower prices after comparing the ratio for a number of companies working in the same sector.
Also, the interpretation is sector dependent on a ratio considered high in one sector may be considered very low in others.