lululemon athletica (NASDAQ:LULU) has experienced tremendous growth over the years, focusing on niche categories in the athletic space, most notably apparel designed for yoga. But it has branched out successfully to other categories, including outerwear, lifestyle, and even apparel for golf. Revenue has grown from $452 million in fiscal 2009 to $3.98 billion in fiscal 2019. 

Before the coronavirus pandemic, the company was firing on all cylinders, pointing to a massive growth opportunity. Revenue increased by 21% last year, led by surging online sales of 35%. Even with sales down after stores closed due to COVID-19, investors are not phased.

The stock is up 33% year to date and trades at a high price-to-earnings (P/E) ratio. I own shares, which currently comprise 4% of my holdings. While I'm content with my holding and I'm not adding more shares at these highs, I'm certainly not selling. My reasons for sticking with it might be another investor's reasons to take the plunge.

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No layoffs during COVID-19

When Lululemon announced it was closing all stores in North America and Europe in March, the company also announced that employees would continue to receive full pay for all hours that would have been scheduled. 

During the fiscal first-quarter conference call in June, CEO Calvin McDonald elaborated on this decision: 

We believe that by supporting our collective and helping them navigate the day-to-day realities of this period, we will build even stronger relationships and increase the already strong loyalty and trust in Lululemon. These decisions are right for our people and for our brand. While there is a near-term impact on our P&L, these investments will serve us well over the long term.

Little things like this speak volumes about a company's culture. On a secondary level, it emphasizes that this is a company on the move. Lululemon has too many growth opportunities to be laying off employees over a recession.

Lululemon has one of the best digital operations in retail

More than ever, customers are shifting to e-commerce, and Lululemon can certainly call this an area of strength. Direct-to-consumer revenue, including sales through the website and mobile app, surged 68% year over year in the most recent quarter, and 70% on a constant-currency basis. E-commerce made up a staggering 54% of total revenue in the most recent quarter, up from 28% in fiscal 2019. 

During the first-quarter call, Senior Vice President Meghan Frank attributed the acceleration in digital traffic to investments in digital marketing and conversion, a strong guest response to products, and investments made to improve the online shopping experience. 

Early stages of international expansion

Lululemon has experienced steady growth outside of North America for several years now, but the overseas operation started from a very small base, so there is still a long way to go to reach its potential.

Revenue outside of the U.S. and Canada increased from $245.6 million in fiscal 2017 to $475.8 million last year, representing just 12% of total revenue.

"Our brand is clearly resonating in our international markets and we continue to believe we can quadruple this business from 2018 levels by 2023," McDonald said during the first-quarter call. 

Still finding ways to expand its addressable market

Lululemon's strategy is to cultivate a sense of community around the brand, which goes back to its founding as a niche yoga store in Vancouver, Canada. This explains part of the rationale for the recent $500 million acquisition of MIRROR

The in-home interactive fitness service will bring a subscription element to Lululemon's annual revenue. In a conference call discussing the deal in late June, McDonald said: "The MIRROR brand naturally folds into our vision. [...] Our vision is to be the experiential brand that ignites a community of people living the sweatlife through sweat, grow and connect." 

Investors should also watch for potential category expansion into footwear, which McDonald highlighted as a growth opportunity during the Analyst Day presentation in April 2019. 

The stock can grow into its valuation

No doubt about it, Lululemon's valuation is high. The forward P/E is currently at 74. But then again, COVID-19 just caused its e-commerce revenue to accelerate sharply. Investors are likely factoring in the potential for margin expansion over the long term given that sales through digital channels generate a high operating margin of more than 40% compared to less than 30% for physical stores. 

Part of the high forward P/E is due to the lower earnings expected this year because of the recent store closures. Next year, analysts expect earnings to increase to $6.25, which would bring the forward P/E down to 50. That shows how fast the current valuation can come down once challenges from COVID-19 abate and Lululemon gets back to growing profits again.

Lululemon still has substantial opportunities to expand. It will be a much larger business 20 years from now than it is today. If you're not weary of paying up for growth stocks, Lululemon should be a great investment over the long haul.