Few dominant themes emerged from the August reporting season, with stock-specific news being the biggest drivers of headlines during the period.

S&P/ASX200 earnings forecasts for FY26 were revised down by around 1% over the month, in line with historic averages. Dividend estimates were left unchanged at approximately $90 billion per annum, while new buybacks totalled around $6 billion.

The local benchmark performed in line with other key global markets in August by gaining 2.6%, in another gauge of how the market perceived the overall results.

“I don't think earnings season left you with any additional view on to whether to get more bullish or less bullish on the Aussie market. The conundrum that it has risen in the absence of overall rising earnings continues”, says Mr. John Lockton, Head of Investment Strategy at Sandstone Insights. 

Companies which benefit from interest rates falls – largely consumer discretionary and real estate stocks – were the strongest performers. The materials sector also did well but this was less related to earnings and instead linked to an improvement in China sentiment.

Below is Sandstone Insights take on what the reporting season told investors about individual companies in the Australian market – including both winners and some that surprised on the downside.

• Life360 (ASX: 360): “There is significant opportunity for the tracking app provider to continue to grow earnings and drive operating leverage through its scalable model”, says Mr. Ryan McCaugherty, Research Analyst at Sandstone Insights.
  
  “User adoption has grown materially over the last few years and those network efforts will continue to accelerate growth. It has new verticals in advertising, pet tracking and elderly care tracking that appear under-appreciated by the market. It also has the firepower for potential acquisitions that could really help grow the business over the next few years”, says Mr. McCaugherty.
   
• Buy Now, Pay Later provider Zip Co (ASX: ZIP) has strong operating momentum, particularly in the US market, according to Sandstone Insights. Buy Now, Pay Later services account for only 2% of all e-commerce transactions in the US, compared to 15% to 20% in early adopter markets such as Australia, Germany and Sweden.
  
  “The company is just reaching its earnings and profitability inflexion point. It is likely to see an acceleration of earnings growth over the next few years and, even though it’s had a good run, there's a lot of momentum behind the stock”, says Mr. McCaugherty.
   
• Payment company Block (ASX: XYZ) now has a market capitalisation of about $32 billion –roughly half the price it paid for Afterpay early this decade: “you're essentially getting the rest of the business for free and it’s showing some really strong evidence of execution,” according to Mr. McCaugherty.
  
  Mr. Nick Molnar, an Afterpay founder is back in the chair to really drive the sales team. Square– a business which provides the small terminals for restaurants and other businesses, continues to expand globally.
  
  “It’s really monetising new products and features and, after a recent rough patch, is starting to show signs of growth but is massively undervalued”, says Mr. McCaugherty.
   
• Data centre operator NextDC (ASX: NXT) is one of the few artificial intelligence plays on the ASX – and two key positives came out of its results. The first is that it will tap private capital markets to fund two future data centres, making it less likely to raise capital from shareholders.
  
  “Secondly, it signalled that it has actual build capacity – which had been a concern for the market. Amazon recently announced it is investing NZD$7.5 billion in New Zealand to build data centre capacity, so the overall theme for the sector remains strong”, says Mr. Richard Bailey, Investment Specialist at Sandstone Insights.

Earnings misses

There were two categories of companies that missed expectations during the August reporting season – those that were potentially oversold and, secondly, those that need to prove their investment case to investors.

• Energy company AGL (ASX: AGL) is one potential contrarian buy, according to Sandstone Insights. Its results revealed that some of its coal fired generators were offline for longer than planned due to equipment failure.
  
  The fact that revenue can never be regained prompted earnings downgrades, but Mr. Bailey says the subsequent share price slide may have been overdone
  
  “You should not get the same outages next year and it’s put in a lot of capital expenditure. Secondly, its batteries are achieving higher prices for electricity than forecast. If you're getting better returns on those batteries, you perhaps need less capex and that's space to replace the coal revenue when it gets phased out”, says Mr. Bailey. 
   
• Packaging company Amcor (ASX: AMC) might have disappointed the market with softer volumes and supply issues in the fourth quarter but Sandstone Insights believes it’s likely been oversold as it’s now trading at multiple of 10 times versus 12 times prior its result, despite only 1% to 2% earnings downgrades from analysts. It has a yield of 6.5% and is typically a defensive stock, according to Mr. Bailey.
   
• Global biotech CSL (ASX:CSL) was sold off heavily after two main issues became evident in its disappointing result Volumes in its CSL Behring business were softer than anticipated and, secondly, management appeared to backtrack somewhat on its double-digit EPG growth target for the next five years.
  
  “We think the derating of the stock could be permanent, certainly for the next year or two. It’s not a stock to chase until there is evidence of volume pick-up, or perhaps some change in the management”, says Mr. Bailey.
   
• Building material company James Hardie Industries (ASX: JHX) may be facing challenges, according to Sandstone Insights. It believes two areas of its US operations are underperforming – its core fibre cement business and The Azek Company, an outdoor living company. As a result, there are concerns that the company could report another difficult quarter and potentially undergo further earnings downgrades. 
  
  “I'm not in the camp where I think they need to raise equity. But I certainly think there's risk they’ll push out their recovery at the next result”, says Mr. Lockton.
   
• August earnings season threw up a mass of different results that should be considered by advisers on a case-by-case basis when evaluating the potential ramifications for clients’ portfolios.

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Sandstone Insights is a third-party company. It is a registered business name of MST Financial Services Limited ABN 54 617 475 180, AFSL 500557 and are not part of AUSIEX.