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Can BlackBerry Ltd. Double From Current Levels?

Shares of BlackBerry Ltd. (TSX:BB)(NASDAQ:BBRY) closed more than 40% higher year-to-date last week as a result of continued investor optimism surrounding the ability of the software company to continue to execute its strategic plan to become an industry leader in providing its secure QNX software for autonomous vehicles.

With an impending autonomous vehicle boom on the horizon, BlackBerry has attempted to position itself as a pioneer in this space. The company’s CEO John Chen invested $100 million into a QNX autonomous driving hub last year to improve and support its QNX software for its current install base, which has been estimated to have already grown to 60 million vehicles today.

The research report citing the success of BlackBerry in moving toward its goal of owning the autonomous vehicle software space has come from respected analyst Andrew Left of Citron Research. At the beginning of last month, Mr. Left released his analysis of the increasingly software-focused firm. He noted that he has learned from his mistakes made with short positions in companies in the past which held large install bases in the automotive industry in which he failed to ascribe value to the install base of the firm; ultimately, he lost a lot of money betting that investors would not place as much value on installation scale as they did.

With long-term catalysts propelling the autonomous vehicle industry forward, Mr. Left has assigned a medium-term price target of US$20 per share for BBRY shares, representing a doubling of the current stock price level for BBRY, which has risen to the US$10-per-share level of late.

I remain convinced that while significant value exists for BlackBerry in the software contracts the company has secured with major automakers, I continue to be wary of the US$20-per-share valuation for a number of reasons.

The first reason is that while BlackBerry is currently the market leader in this space, competition is heating up, and BlackBerry has already lost one lucrative contract with Toyota Motor Corp. to Linux, which has continued to improve its Automotive Grade Linux platform. With other software platforms improving in terms of quality and speed, BlackBerry once again faces the risk of obsolescence or being pushed aside by a newer and better technology, as it once was with Android and Apple smartphones.

Secondly, while the newfound software niche is markedly more profitable than the company’s foregone hardware business, a significant amount of future profitability has been priced into BlackBerry’s current share price. A doubling of the company’s current share price would mean growth expectations would need to explode alongside near-term profitability numbers and market share data — all scenarios are possible, but are more unlikely than not.

Bottom line

BlackBerry is one of those Canadian technology companies that is fun to follow, and even more fun to trade. At current levels, this is a trader-friendly stock, and one which I believe carries too much risk to be considered a medium- or long-term hold.

Stay Foolish, my friends.

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Fool contributor Chris MacDonald has no position in any stocks mentioned. David Gardner owns shares of Apple. The Motley Fool owns shares of Apple.

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