Investors have the tendency to chase performance. And we should stop. This is one of the primary reasons why Morningstar’s Mind the Gap study shows that investors underperform the investments in their portfolio by 1.7% a year. Read more about how to improve your performance by making better decisions.

The following 3 ASX share have been on a strong run. It can be tempting to assume those strong returns will continue into the future but our analysts believe all of them are significantly overvalued.

Evolution Mining EVN

Evolution’s (ASX:EVN) first-half fiscal 2025 result is very strong, with adjusted earnings before interest, taxes, depreciation and amortisation (“EBITDA”) of about $1 billion, up 77% on a year ago. Stronger gold and copper prices and increased sales volumes more than offset modestly higher unit cash costs driven by inflation, mainly in labor costs.

Why it matters: Guidance is maintained except for increased capital expenditure, as spending on its Mungari mine expansion is brought forward, given it is ahead of schedule.

  • With second-half production likely weaker due to planned maintenance, we still expect fiscal 2025 gold volumes of around 730,000 ounces, moderately higher than last year. We also still expect copper volumes of about 75,000 metric tons, up 11%, driven by its purchase of an 80% stake in Northparkes.
  • Strong gold sales volumes of 385,000 ounces, up 16% due to a full half of Northparkes and higher production from Cowal, contributed to solid cost control despite inflationary headwinds. We lower our forecast near-term all-in-sustaining costs by about 8% on average.

The bottom line: We raise our fair value estimate for no-moat Evolution by 5% to $3.30 per share, driven by lower expected unit cash costs, partially offset by higher capital expenditure.

  • After more than doubling over the past year, shares trade 90% above fair value, likely due to the company’s solid operating performance, historically high gold prices, and a weaker Australian dollar. Spot gold of about USD 2,900 per ounce is up 45% over the past year, translating to about $4,600.
  • This compares with our base-case assumptions of about USD 2,810 per ounce on average from 2025 to 2027, reverting to our assumed midcycle price of around USD 1,820 midcycle from 2029 based on our estimate of the marginal cost of production.

Bulls say: In our bull case, we assume gold averages USD 3,380 per ounce from 2025 to 2027 and USD 2,180 midcycle from 2029. In this case, our fair value estimate rises to $4.50 per share, still 28% below the current share price.

Hub24 HUB

Hub24’s (ASX:HUB) underlying net profit after tax for first-half fiscal 2025 grew by 40% from first-half fiscal 2024. The underlying EBITDA margin expanded to around 40% from 35% during this period.

Why it matters: The result met our expectations. Given Hub24’s growth phase, margin expansion from scale benefits is expected. However, the rate of profit growth may be slower in the future. Slower inflows, fee pressure, or unforeseen cost growth are downside risks due to competitive pressures.

  • Custodial platform revenue margin compression was slower than expected, while noncustodial products saw greater-than-expected price increases. However, operating expenses across all segments also grew more than forecast, keeping EBITDA margins largely as we expected.
  • Hub24 is increasingly reliant on large one-off client transitions. These migrations can come with lower margins due to negotiated pricing or revenue-sharing arrangements. Accordingly, there is potential for future revenue margins to further compress beyond market expectations.

The bottom line: We raise our fair value estimate for no-moat Hub24 to $30 per share from $29, reflecting the time value of money. We now assume slower fee compression but also higher cost growth, leaving our earnings forecasts largely unchanged. Shares are expensive.

  • We think the market is pricing in aggressive growth in flows and margins. Unlike technology firms with economic moats, Hub24 has regulatory constraints on pricing power. Larger competitors have also enhanced their offerings and are reporting stronger inflows, a signal of competitive resurgence.
  • To justify current prices, we’d need to lower the cost of capital to 4%, which we think is unrealistic. Otherwise, if we maintain the 9% cost of capital, our earning per share growth estimate would need to more than double to 45% per year over the next five years, highly unlikely given growing competition.

JB Hi-Fi JBH

JB Hi-Fi’s (ASX:JBH) sales growth is outperforming. Rising Australian household incomes, market share gains, and a bolt-on acquisition supported group 10% sales growth in first half fiscal 2025. However, earnings growth lagged. Net profit after tax increased by 8% to AUD 285 million on first half fiscal 2024.

Why it matters: JB Hi-Fi’s sales growth exceeded our expectations. We suspect JB Hi-Fi took share from its largest Australian competitor, Harvey Norman. But despite strong top-line performance, normalizing competitive intensity constrained Australian profit margins.

  • Group pretax margins of 7.2% are well below their recent peak of 8.9% in the first half of fiscal 2023. We expect moderating sales growth and intense competition from online retailers like Amazon to shave another 70 basis points off JB Hi-Fi’s pretax margins by fiscal 2027.

The bottom line: We increase our fair value on no-moat JB Hi-Fi by 7% to AUD 44 largely on a 6% uplift of long-term sales levels, and time value of money. At current prices, shares are materially overvalued. We think this represents our more cautious outlook for maintainable operating margins.

  • While we expect JB Hi-Fi holds onto its newly acquired market share gains, we expect pretax margins moderate to long-term maintainable levels of around 6% by fiscal 2027. All else equal, we estimate pretax margins would need to expand to 15% to justify current prices, from 7% in fiscal 2024.
  • We forecast soft earnings growth over the medium term, with mid-single-digit sales growth barely offsetting weakening profit margins from fiscal 2026. At our fiscal 2028 earnings per share estimate of AUD 4.29, current prices suggest a P/E of 23.

Big picture: E-commerce is outperforming in-store retailing. We expect this structural trend to continue over the next decade. Retailers with strong online platforms like JB Hi-Fi, and online pure plays like Kogan are likely to benefit.

Get more Morningstar insights in your inbox

Terms used in this article

Star Rating: Our one- to five-star ratings are guideposts to a broad audience and individuals must consider their own specific investment goals, risk tolerance, and several other factors. A five-star rating means our analysts think the current market price likely represents an excessively pessimistic outlook and that beyond fair risk-adjusted returns are likely over a long timeframe. A one-star rating means our analysts think the market is pricing in an excessively optimistic outlook, limiting upside potential and leaving the investor exposed to capital loss.

Fair Value: Morningstar’s Fair Value estimate results from a detailed projection of a company’s future cash flows, resulting from our analysts' independent primary research. Price To Fair Value measures the current market price against estimated Fair Value. If a company’s stock trades at $100 and our analysts believe it is worth $200, the price to fair value ratio would be 0.5. A Price to Fair Value over 1 suggests the share is overvalued.

Moat Rating: An economic moat is a structural feature that allows a firm to sustain excess profits over a long period. Companies with a narrow moat are those we believe are more likely than not to sustain excess returns for at least a decade. For wide-moat companies, we have high confidence that excess returns will persist for 10 years and are likely to persist at least 20 years. To learn more about how to identify companies with an economic moat, read this article by Mark LaMonica.

Uncertainty Rating: Morningstar’s Uncertainty Rating is designed to capture the range of potential outcomes for a company. An investor can think of this as the underlying risk of the business. For higher risk businesses with wider ranges of potential outcomes an investor should consider a larger margin of safety or difference between the estimate of what a share is worth and how much an investor pays. This rating is used to assign the margin of safety required before investing, which in turn explicitly drives our stock star rating system. The Uncertainty Rating is aimed at identifying the confidence we should have in assigning a fair value estimate for a stock. Read more about business risk and margin of safety here.