This paper takes the middle and small scale enterprises in Zhejiang province for example and select PE ratio as the subject to examine the guiding significance of PE ratio in investment analysis and comes to the following conclusions: A company’s growth potential may be reflected in PE ratio, especially for indicators such as incensement indicator and cash return ratio. However, investors may intend to speculate to gain profits in a short time, thus increase its risk. Some suggestions to investors and managers are provided in the end of the paper.