This scientific paper has been published on Journal of International Finance and Economics (JIFE), and was presented in IABE San Francisco Conference in December 2015.

ABSTRACT:
The study aims to establish a valuation model, based on the fair price to book value (PBV) ratio of 448 stocks data from S&P 500 listed companies during the period of 2005-2014. This valuation formula is established with the thesis that investors value stocks based book value of equity and premium of book value. This study finds the proposed formula is useful to determine the fair price of a stock by using book value of equity, return on equity, cost of equity, and sustainable growth rate. Further testing is done by selecting undervalued stocks portfolio based on this model to prove that these stocks are able to beat both average total returns of total observed portfolio and average return of overvalued stocks portfolio in the same period. Not only the portfolio generates a better than average return, it also implies a better risk-adjusted return as shown by Sharpe Ratio and a lower risk as shown by relatively low standard deviation and coefficient of variation.

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Happy reading :)