Amazon (NASDAQ:AMZN) The transformation from a humble online bookseller to a tech giant now seems almost legendary. Today, the company dominates sectors ranging from e-commerce to cloud computing, with Amazon Web Services (AWS) contributing more than half of its annual operating profit.

Like (most of) its Magnificent Seven competitors, Amazon stock has posted solid gains this year, rising 24%. The big question is how long can this uptrend continue and will the valuation become too high to justify a position?

An investor who goes by the pseudonym Envision Research believes Amazon is still going strong.

“Its valuation ratio is much lower than what would be superficially expected based on the owner’s income,” the 5-star investor writes.

Envision had previously expressed cautious optimism about Amazon, worrying about “uncertainties” in the retail sector. However, Prime Day’s recent success, in which deals saved over $1 billion for consumers, has assuaged many investor concerns.

In fact, Envision sees “several ongoing catalysts that could initially increase the profitability of the retail segment and also the company’s overall EPS growth.”

These catalysts include Amazon’s One Medical primary care services, expansion of online vehicle sales, and improvements in freight and order fulfillment in the U.S., with similar cost savings opportunities available abroad.

In addition, the investor believes that “current retained earnings dramatically underestimate the owners’ actual profits (by more than 20% in my estimate”) due to the recent significant growth investments.

Envision distinguishes between growth investments and maintenance investments while arguing that growth investments should be reflected in the outcome. Amazon’s recent capital expenditures largely consist of spending on AI-related projects, which clearly fall into the category of growth investments.

According to this new calculation, Envision estimates Amazon’s P/E ratio at 32.9x – significantly lower than the traditionally calculated 40x.

“Owners’ earnings have historically consistently exceeded both accounting earnings per share and free cash flow, a hallmark of a growth stock,” Envision concluded.

Envision sees Amazon stock as “significantly cheaper” than expected and rates it as a “strong buy.” (To view Envision Research’s track record, click here)

Envision’s views are reflected on Wall Street, where the heavily valued stock has 46 “Buy” and 2 “Hold” ratings. This gives AMZN a Strong Buy consensus rating and its 12-month average price target of $224.16 implies a gain of nearly 19%. (See AMZN stock forecast)

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Disclaimer: The opinions expressed in this article are solely those of the featured investor. The content is for informational purposes only. It is very important to do your own analysis before investing.