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On Monday, Northland analysts made a significant change to their outlook on zSpace Inc (NASDAQ:ZSPC), upgrading the stock’s rating from Market Perform to Outperform. This adjustment comes alongside a revised price target, now set at $10.00, down from the previous $20.00. The analysts cited a mix of challenges and positive projections as the basis for their decision. The stock, currently trading at $8.19, has experienced significant volatility, with InvestingPro data showing a 24% decline in the past week alone.
The upgrade reflects a shift in sentiment despite near-term demand uncertainties which have affected the company’s bookings in recent quarters. December quarter bookings were influenced by the timing of zSpace’s capital raise, and March quarter bookings were impacted by policies from the new administration. These factors have led to a cautious approach in the short term. According to InvestingPro analysis, the company operates with a moderate debt level and maintains a current ratio of 0.65, indicating potential liquidity challenges.
Despite these headwinds, Northland analysts expressed confidence in zSpace’s ability to maintain a strong growth trajectory. They have projected a sustained 25% growth rate in the company’s software segment. However, due to the weaker-than-expected March quarter bookings, the analysts have adjusted their estimates, including the sustained software Compound Annual Growth Rate (CAGR), which has been revised to 25% from the previous estimate of 30%. Recent financial data shows the company achieved a gross profit margin of 41% in the last twelve months, though revenue declined by 13%.
The lowered Discounted Cash Flow (DCF) Price Target (NYSE:TGT) to $10 from $20 reflects these updated growth estimates and bookings concerns. Nonetheless, the analysts have identified a favorable risk/reward balance for zSpace stock. Their current price target implies a potential 50% upside, which has contributed to the decision to upgrade the stock to Outperform.
In their comments, Northland analysts highlighted the key metrics and data points that bolster their confidence in zSpace’s continued growth in the software sector. They believe that despite the recent challenges, the company’s long-term prospects remain robust, leading to the upgrade in stock rating and the new price target set at $10.00. For a comprehensive analysis of zSpace’s valuation and growth prospects, investors can access detailed financial health scores and additional ProTips through InvestingPro, which offers an in-depth Pro Research Report covering over 1,400 US stocks.
In other recent news, zSpace Inc. reported a 29% decline in fourth-quarter revenue for 2024, amounting to $8.54 million. Despite this, the company experienced a 6.08% rise in its stock during premarket trading, reflecting investor optimism. The company also launched two new products, Inspire Two and Imagine, aiming to bolster its market position. Additionally, zSpace acquired BlocksCAD, enhancing its offerings in the educational technology sector. Gross margins improved by 240 basis points to 40.9%, indicating better operational efficiency. For the full year, revenue decreased by 13% to $38 million, although bookings slightly increased by 1%. Looking ahead, zSpace projects first-quarter 2025 revenue slightly above $5 million. The company plans to focus on expanding its presence in K-12 and career and technical education markets, both domestically and internationally.
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