A quality company can still be a bad investment if bought at the wrong price.

Companies that have experienced strong growth or are swept up in bullish market narratives – like the reopening of China from strict Covid lockdowns – can be appealing to investors. It can also be difficult for investors to assess when shares tip into overpriced territory, resulting in them paying a premium.

We spoke with Morningstar’s equity analysts to identify five ASX stocks carrying significant price risk – meaning they’re trading well above Morningstar’s fair value estimate of their worth – at least for now.

These companies hold a Morningstar rating of either 1- or 2-stars, which indicates they’re trading at more than what the analyst believes it is worth and indicates the risk of investing isn't outweighed by potential returns.

Here are five stocks to avoid buying at current levels. All data is current as of 9 March, 2023.

1. Pro Medicus (PME)

  • Star rating: ★
  • Premium to Fair Value: 119%
  • Uncertainty rating: High
  • Economic moat: Narrow


The most overvalued stock in Morningstar’s Australian coverage universe, shares in health IT company Pro Medicus currently sit at around a 119% premium to their fair value estimate. That means the stock’s recent share price of around $62.44 is more than double its fair value estimate of just $28.50.

Senior equity analyst Shane Ponraj says the outlook for the growth in the company’s main product—imaging platform Visage 7— has been strong in the past but may face headwinds going forward.  

“Visage 7 has resonated most with US academic hospitals that typically have large endowments and greater interest in advanced visualisations and artificial intelligence.”

“We think these features are largely superfluous outside of the academic hospitals market and expect wider adoption to continue to be slow,” he says.

If the more lucrative academic hospitals market begins to saturate, Ponraj says Pro Medicus’ strong track record of tender wins may prove to be less durable, given low barriers to entry and larger competitors in the health IT space.

2. Ebos Group (EBO)

  • Star rating: ★
  • Premium to Fair Value: 45%
  • Uncertainty rating: Medium
  • Economic moat: Narrow


Another healthcare company screening as overvalued is medical products wholesaler Ebos Group, which is currently sitting at just over $42.00 per share, a 45% premium to its fair value estimate of $29.00.

Ponraj notes similar concerns seen in Pro Medicus but says the market may also be extrapolating based on the company’s strong recent growth record, which may have been partially caused by temporary factors, such as the pandemic.  

“First-half community pharmacy revenue grew an abnormally high 18%, with management attributing roughly 40% of that growth to coronavirus-related products including anti-viral medication that is unlikely to repeat in the second half,” he says.

Beyond that, Ponraj also notes that a 1% market gain in community pharmacies touted by the company may be clawed back by competitor Sigma now issues effecting the latter company have been resolved.

3. Fortescue (FMG)

  • Star rating: ★★
  • Fair Value premium: 48%
  • Uncertainty rating: High
  • Economic moat: None


The largest company by market cap to make this list, Fortescue Metals Group is championed as one of the great success stories of the nation’s mining sector, rising from relative obscurity in the early-2000s to become a global iron ore giant.

However, with Fortescue shares trading a 48% premium to their fair value estimate, Morningstar equity analyst Jon Mills says issues with the company’s operating margins and exposure to the iron ore price have raised concerns.

“Fortescue mines iron ore at a lower grade than its competitors, meaning a higher cost to adjust for the quality of the ore that they produce. This means more leverage to changes in the iron ore price.”

“So, if the iron ore price goes down—or up, as it has recently—Fortescue will react much more than BHP and Rio, which also produce other commodities like copper and aluminum. FMG is basically leveraged to iron ore alone.”

Mills also notes the company’s recent push towards green hydrogen development has garnered a lot of public attention, despite being in its nascent stages. If the market is already pricing in a foreseen boom in the hydrogen sector down the track, Mills says it may prove overeager.

“While laudable from an ESG perspective, particularly given the company's aims to lower carbon emissions, it's not yet clear whether these investments will bring competitive advantage or add shareholder value,” he says.

4. BlueScope Steel (BSL)

  • Star rating: ★★
  • Fair Value premium: 55%
  • Uncertainty rating: Very High
  • Economic moat: None


Materials producer BlueScope Steel similarly appears overly exposed to cyclical pricing issues, according to regional director of equity research Matthew Hodge.

In his most recent update following the company’s half-year report, Hodge says the market may have not yet fully priced in upcoming headwinds, such as the reversal of US steel spreads and structural changes occurring in the Chinese economy, especially around a weaker real estate market.

“We do not believe the market has anticipated a meaningful slowdown in construction activity across the United States and Australia induced by higher interest rates and the volume impact stemming from the return of imports on long-term volumes,” Hodge adds.

Last month, shares in BlueScope slipped more than 10% after the company amended its second half underlying earnings before interest forecast to between $480 million and $550 million, citing softer steel spreads in the US and Asia.

However, the company’s share price has regained the lost ground in recent weeks to now sit 2% higher than its pre-half-year-report price point, a 55% premium to Morningstar’s fair value estimate of $13.00. 

5. ALS ltd (ALQ)

  • Star rating: ★
  • Fair Value premium: 69%
  • Uncertainty rating: Medium
  • Economic moat: None


Global provider of analytical testing and inspection services, ALS, has developed a strong reputation on the ASX through its commodities division, which provides geochemistry, metallurgy, inspection and other services to the mining industry.

Analyst Mark Taylor says, during the mining boom, the minerals division was “the growth engine” for the company.

“EBIT almost doubled within two years, and minerals still accounts for just under half of group EBIT.”

But despite further expected growth in the company’s materials and emerging life sciences segments, Taylor says the earnings multiples seen recently in the share price may be a cause for concern, particularly given the cyclical nature of the minerals space.

“We continue to have concerns around implicit high earnings multiples, anticipating ongoing strong earnings growth. The most material earnings growth is currently coming from minerals segment and minerals is the most cyclical of ALS’ segments.”

“When the tide inevitably turns for minerals, there is potential for market disappointment and contraction in the earnings multiples being applied to ALS overall,” he adds.

ALS is trading at a 69% premium to Morningstar’s fair value estimate of $7.10.