Should you sell your zSpace stock?

In a March 31 report, Roth Capital Markets analyst Rohit Kulkarni maintained his “Buy” rating on zSpace (zSpace Stock Quote, Chart, News, Analysts, Financials NASDAQ:ZSPC) and cut his price target to $0.50 from $3.00, based on 1.5x his 2026 revenue estimate and about 2.9x projected 2026 gross profit.

Kulkarni said 2025 was an extremely difficult year for the company, citing tariff-related supply chain pressure and an extended government shutdown that weighed on K-12 funding, but added that developments so far in 2026 suggest a more balanced setup.

“Funding actions, new customer wins, and 30%-plus cost reduction suggest management is taking steps to stabilize the business and extend runway,” he said.

He pointed to recent financing moves as evidence management is focused on liquidity and balance sheet repair. On January 29, zSpace announced a $3.0-million strategic investment from Planet One Education, followed on March 17 by a $4.3-million senior secured convertible note that allowed for partial repayment of existing debt.

Kulkarni said the steps should help extend the runway and preserve optionality, including around international expansion.

Fourth-quarter results came in below expectations, with revenue of $4.8-million versus Street estimates of $6.2-million. Bookings were $3.2-million, down 41 per cent year over year, while backlog fell to $3.6-million from $6.4-million in the third quarter, both affected by education funding uncertainty and the government shutdown. K-12 accounted for 44 per cent of bookings in the quarter and career and technical education made up 56 per cent.

Gross margin improved to 49.1 per cent from 40.7 per cent a year earlier, though it remained below the Street’s 54.4 per cent forecast. Kulkarni said the improvement reflected a greater software mix, with software declining 15 per cent year over year but rising to 49 per cent of total revenue, as well as a better cost profile on newer hardware products, including the company’s AI-enabled stylus launched in mid-November.

He said software renewal metrics were also pressured, largely because two large customers did not fully renew during the quarter. Annualized contract value for renewable software fell to $9.9-million at year-end from $10.2-million at the end of September, while net dollar retention slipped to 71% from 77%. Excluding the two partial renewals, Kulkarni said ACV would have been $11.1-million and net dollar retention would have been 88%.

Management did not provide guidance, citing continued uncertainty around federal education funding and limited visibility because of the back-end-weighted nature of sales, although Kulkarni noted management said January and February tracked ahead of the prior year.

Kulkarni said zSpace should post an Adjusted EBITDA loss of $1.4-million on revenue of $21.9-million in fiscal 2026. He said a reverse stock split, a potential debt-for-equity swap and positive EBITDA in 2026 could help stabilize the shares over the medium term.

-30-