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Because P/B has absolutely no relation to P/E (and sometimes neither has any relation to reality :-))
Book value does relate to retained earnings as you say. But how the market reacts to them in terms of expanding or contracting P/E or P/B is not always clear.
Typically earnings growth drives higher P/E (so an amplifying effect on the price, whether justified or not). It probably drives a higher P/B as well, but maybe not as much by percentage. Even higher earnings growth = higher P/E is not always true. For example, the market knows that some industries are cyclical, so P/E contracts when earnings are growing and expands when earnings growth is negative.


Interestingly, the two ratios are actually a simplification of the exact same DCF model and can be used interchangeably. Now, some companies are better understood when the multiple is expressed as P/B vs. P/E, but the end result is still the same. If someone presents a valuation using different multiples and the TEV of the company using both approaches isn't equivalent, an underlying assumption in the DCF was changed for one of the multiples (growth rate, margin, tax rate, etc.). While I don't agree with everything he presents in the deck linked below, Damodaran does outline the mathematical equivalency of multiples, no matter which one you use.


http://pages.stern.nyu.edu/~adamodar/pdfiles/country/relvalA...

-RoyalScribe
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