Valuation plays a large role in the future returns of shares. The following 2 ASX share are materially overvalued and our analysts believe they should be avoided at current prices.

Pro Medicus (ASX: PME)

Pro Medicus is trading at a 233% premium to our fair value estimate as of 22 July.

Pro Medicus’ strategy revolves around renewing existing contracts and winning new clients for its main product, Visage 7, while increasing its price point. The company won six out of six major public tenders it competed for in fiscal 2021, which often involved on-site pilot tests. While this likely highlights Visage 7’s current superior speed, scalability, and resilience, continued investment in research and development is imperative for the firm to remain at the forefront of innovation and consistently win contracts. Most of the firm’s expenses are allocated to over 40 software engineers with the main R&D center located in Berlin. The company also recently extended its R&D capability in New York in collaboration with NYU Langone Health in 2021. Its R&D efforts mostly revolve around software enhancements, program extensions, and research in artificial intelligence to assist in diagnoses.

Many of Pro Medicus’ competitors already utilize server-side rendering and cloud-native architecture. Legacy systems are also mostly owned by larger competitors such as GE Healthcare, Fujifilm, and Philips, which will be incentivized by the high returns in the industry. In Australia, Sectra won an AUD 85 million 13-year deal over Pro Medicus with NSW Health for both its Radiology Information System and Picture Archiving Communications System in 2020.

Visage 7 has found most success with US academic hospitals and in fiscal 2025 was in 11 out of the top 20 ranked US hospitals, more than double its nearest competitor. While Pro Medicus has secured a few contracts with midmarket US hospitals such as Allegheny and Wellspan, wider uptake has been slow, with Visage 7’s features likely superfluous for their normal operations. However, Pro Medicus is still targeting smaller radiology groups that seek to consolidate IT infrastructure and become more efficient.

Currently, Visage 7 is limited to radiology and cardiology departments, but Pro Medicus is aiming to extend the product set to other specialty departments, including ophthalmology. In addition, when winning contracts, the firm has other product offerings, such as Open Archive or Visage RIS, that it can cross-sell to clients.

Fair value

Our fair value estimate is $54 per share. This implies a forward fiscal year price/earnings ratio of 37 and an enterprise value/EBITDA ratio of 24.We forecast a five-year group revenue compound annual growth rate of 15%, which is largely driven by our revenue assumptions for Visage 7 in the US, which contributed 90% of fiscal 2025 group revenue.

We forecast segment revenue to grow at a five-year CAGR of 16%, resulting in 92% of group revenue stemming from the US by fiscal 2030. In the region, we assume Pro Medicus can win five major contracts per year on average versus its typical historical average of three major contract wins per year. We expect this is likely, as it extends the product set to other specialty departments outside of radiology, such as cardiology.

We also assume average contracted revenue per year, which is volume-based, grows by a 4% CAGR. This is made up of 0.75% volume growth due to population and aging demographic factors, 2.75% due to volume growth per capita as adoption of radiology exams increases, and 0.5% average price growth per exam.We expect EBIT margin to average 76% during the next five years, up from 74% in fiscal 2025.

Pro Medicus has great cost control as it manages its own R&D and marketing, which make up the bulk of expenses, and contracts allow the company to pass through installation, training, and support costs to customers. We expect low levels of capital expenditure to persist and forecast an average of AUD 10 million in spending per year. Our estimates deliver a forecast five-year EPS CAGR of 16%.

Evolution Mining (ASX: EVN)

Evolution Mining is trading at a 142% premium to our fair value estimate as of 22 July.

Evolution Mining owns 100% of four gold mines in Australia and one in Canada. In December 2023, it also bought an 80% stake in the Northparkes copper and gold mine in New South Wales. Its portfolio is the result of numerous transactions since forming in 2011 via the merger of Conquest Mining and Catalpa Resources and the purchase of Newcrest Mining’s Mt Rawdon and Cracow mines. Cowal and Mungari were purchased in 2015, with an initial interest in Glencore’s Ernest Henry mine following in 2016, Red Lake in Canada in 2020, the rest of Ernest Henry in 2022, and a majority stake in Northparkes in 2023. Cracow was sold in 2020.

We forecast Evolution to increase gold sales to about 850,000 ounces in fiscal 2030, up from roughly 750,000 ounces in fiscal 2025. This is driven by increased production at its Red Lake and Mungari mines. Along with Cowal, these three mines account for about 85% of midcycle sales in fiscal 2030. The company’s all-in sustaining costs including byproduct credits of roughly AUD 1,570—around USD 1,020—per ounce for fiscal 2025 (excluding Mt Rawdon, which is near the end of its life) places it comfortably within the first quartile of the gold industry cost curve. As of the end of December 2024, the company had roughly 15 years of gold reserves and 20 years of copper reserves.

We also forecast the company to sell about 75,000 metric tons of copper in fiscal 2030, similar to fiscal 2025. Copper adds some diversification, accounting for around 25% of midcycle revenue in fiscal 2030.

Evolution is targeting owning up to eight mines in jurisdictions with low sovereign risk, such as Australia and Canada. Its focus is mainly on gold, as well as copper, aiming to purchase assets from motivated sellers and subsequently increase reserves and mine lives through exploration and development.

Fair value

We reduce our fair value estimate for Evolution to $4.50 per share, from $4.70, driven by the lower gold price, partially offset by currency movements since our last update.We forecast gold sales volumes rising to around 850,000 ounces in fiscal 2030, driven by increased production at Red Lake and Mungari. Along with Cowal, these three mines account for about 85% of midcycle sales volumes in fiscal 2030.

We also expect copper sales to remain steady at about 75,000 metric tons over our five-year forecast period. Copper adds some diversification, accounting for around 25% of midcycle revenue in fiscal 2030. We now assume gold averages around USD 4,400 per ounce from 2026 to 2028 based on the futures curve, down from about USD 4,900.

However, our assumed midcycle price remains about USD 2,050 per ounce from 2030. This is based on our estimate of the long run marginal cost of production.Also cuing off the futures curve, our assumed average copper price from 2026 to 2028 remains about USD 6.00 per pound. Based on our estimate of the long run marginal cost of production, we assume a midcycle price of about USD 3.80 per pound from 2030.Cash flow is discounted at a 8.0% weighted average cost of capital, based on a long-term capital structure comprising 25% debt and 75% equity.

We assume an 8.9% long-term cost of equity, reflecting gold’s lack of systematic risk and correlation to GDP. We apply a 5.4% pretax cost of debt, reflecting what we expect Evolution’s long-term cost of debt will be in a normalized interest-rate environment.