(AMZN) - Get Report

reports its first-quarter earnings on Thursday, but it might not matter much what the company says.

Amazon's shares have risen to Internet-boomlike levels, seemingly without regard to the fundamentals of its business. And as long as the company meets or beats Wall Street's generous expectations, the company's shares are likely to continue their upward spiral, investors say.

"We're in make-believe land again," said hedge fund manager and

contributor Bill Fleckenstein. "We're back to playing the game: 'If I promise to deliver and do, it can support any price.'"

That's not to say Amazon hasn't shown real improvement in its fundamentals. The company's net loss dropped from $567.3 million, or $1.56 a share, in 2001 to $149.1 million, or 39 cents a share, last year. Meanwhile, the company's revenue grew 26% to $3.93 billion.

Last year, the company generated positive free cash flow for the first time, which it defines as operating cash flow less purchases of fixed assets.

The cash flow numbers have enticed analysts and investors alike and helped give a pretext for the run-up in Amazon's stock.

Meanwhile, both Wall Street and company management are bullish on Amazon's future. Excluding charges such as stock-based compensation, amortization of goodwill and restructuring charges, Wall Street analysts are expecting Amazon to earn 4 cents a share in the first quarter on $1.05 billion in sales, according to Thomson Financial/First Call. The company projected in January that it would earn between 1 cent and 5 cents a share on revenue of $1.025 billion to $1.075 billion on this basis.

For the year, analysts project that Amazon will earn 32 cents a share on this basis. Amazon has projected that it will earn a pro forma 27 cents a share, or more than $115 million, on sales growth of more than $4.52 billion.

Despite the company's improving outlook, its stock has far outpaced its fundamentals. After rising 75% last year, Amazon's shares have begun to echo the dot-com boom, posting another 35% gain in the year to date.

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After closing down 15 cents to $25.43 on Wednesday, Amazon shares are now trading at 79 times the pro forma earnings analysts expect it to post this year. Not only does that multiple not factor in GAAP earnings, it also doesn't include the cost of stock options, a significant expense at Amazon.

If Amazon would have had to account for the fair value of stock options in 2002 instead of their intrinsic value, its loss would have swelled to $228.3 million, or 60 cents a share.

Amazon's stock price seems to imply that the company will post $1.50 in earnings in two to three years, on a GAAP basis (to get to a typical retailer's P/E of 17), which will likely include the cost of stock options, noted Douglas Pratt, a portfolio manager at Wells Capital management. Given the company's track record, that could be difficult to pull off.

"I'm a value investor," Pratt said. "It's hard to see value here."

Meanwhile, the company's stock performance has come despite legitimate questions outstanding about Amazon's business model.

The company continues to carry a large load of debt: $2.3 billion at the end of last year. Most of that debt is at interest rates far higher than what it might get today, says another portfolio manager, who asked not to be named. Amazon spent $142.9 million on interest payments last year, money that could have been used to generate more cash flow or to shore up other areas of its operation, the portfolio manager said.

If Amazon could refinance that debt or pay it off through another equity offering, "it would become a more attractive story," the portfolio manager said.

Meanwhile, debt isn't the only liability facing Amazon. The company saw its accounts payable rise at a faster rate than its revenue last year. The change in accounts payable -- $173.38 million -- nearly equaled the amount of cash Amazon generated from operations last year, indicating that the company is only making cash by delaying payments to vendors.

That's always been Amazon's model, notes the unnamed portfolio manager. But at some point Amazon will maximize the number of days it can delay vendor payments. Meanwhile, the company is probably paying vendors higher prices in order to put off payments so long, the portfolio manager noted.

"My guess is that their cash flow is going to be very good this quarter, but they're borrowing from their future," the portfolio manager said.

But for the time being, such criticisms may not matter much for Amazon's stock.

Analysts such as the portfolio manager are "trying to find too many ghosts in the closet for these companies right now," said Gary Farber, a partner with the hedge fund Nightingale & Farber. "There's been a sentiment shift in the world.

Investors are looking at hope. Hope will kill you in this business, but in a bull market, it doesn't."