After a climb of more than 85% this year, has Amazon.com's ( AMZN) stock reached a peak?

That's what some investors and analysts are starting to wonder after a downgrade of Amazon shares by Legg Mason's Thomas Underwood on Tuesday. Citing valuation concerns, Underwood dropped his recommendation on Amazon from a hold to a sell.

"Despite Amazon's signficant outperformance vs. expectations and despite the company's significant fundamental advantages over traditional retailers, we would not own shares at current levels," Underwood wrote in his report. (Legg Mason does not have investment banking business with Amazon.)

Following his report, Amazon shares fell, ending regular trading down 17 cents, or 0.5%, to $35.23. Shares in the e-commerce company are up from the end of last year, when they traded at $18.89. The company's stock has climbed steadily since reaching a nadir of less than $13 a share last summer.

Some analysts were questioning the company's valuation throughout that rise, including Prudential Securities analyst Mark Rowen, who in December reiterated an earlier sell rating on the company's stock and his $10 price target on it.

By just about any measure, Amazon is a pricey stock. The company's shares are currently trading at 72.6 times analysts' projected 2003 earnings. That number would be a whole lot bigger if it were based on GAAP figures, which include a whole host of charges that analysts exclude from their estimates.

Even so, Amazon is pricier on a P/E basis than e-commerce rival eBay ( EBAY), which is currently trading at about 66.9 times current year earnings. This despite the fact that eBay has been consistently profitable, has little debt and has posted far faster revenue growth rates than Amazon.

In Amazon's case, some of its stock appreciation could be explained by improving fundamentals. The company posted its second-ever quarterly profit on a GAAP basis in the fourth quarter. Meanwhile, the company bested analysts' expectations in the first quarter by about 6 cents a share.

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