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Lululemon Athletica Inc. (LULU) have been stretched in both directions over the past two years but now, with the economic recovery in sight, Odlum Brown analyst Barbara Gray says the stock should only go up from here.

Ms. Gray said in a note to clients:

We continue to recommend investors establish a position in this local high-quality, debt-free, fast-growing athletic apparel company. Although the stock is up over 75% since we initiated coverage on it only two months ago, we believe the stock still has strong long-term upside potential.

Since its initial public offering price of $18 in July 2007, shares in the dual-listed Lululemon have run the gamut, rising as high as $58 on Oct. 22, 2007 and falling as low as $4.49 on Mar 9, 2009. As of Thursday's close, the stock was trading at $21.76 in New York and C$23.40 in Toronto.

Ms. Gray maintained her BUY recommendation and raised her target price from C$21 to C$28, based on the company's improving sales productivity.

She told clients that the yoga retailer has been able to achieve only a 2% decline in comparable store sales through the recession. In addition, the company achieved sales productivity of C$1,325 per square foot, which is over three times the median C$425 per square foot level of its peer U.S. specialty apparel retailers last year.

Ms. Gray raised her same-store-sales growth rate in her discounted cash flow model for the period of 2009 to 2013 from 2% to 6%.

We note this implies the company’s sales per square foot climbs from an estimated base of C$1,300 this year by C$100 per year to reach C$1,600 by 2012, which is still conservatively below the C$1,700 level achieved in 2007.

In response to the recession, Lululemon has conservatively scaled back on the number of new openings from 35 stores last year to only 7 stores this year and 15 stores next year.

Ms. Gray is assuming a new store opening rate of 20 stores in future years but noted the addition of 5 more stores per year would add C$3 in value to the stock.

She wrote:

We highlight there could be further upside to our target if the company decides to re-accelerate the number of store openings or launch its new stand-alone ivivva stores [for kids].

Source: Lululemon: High Quality, Debt Free, Fast Growing - Odlum Brown