Is This How Lululemon Grows Into Its $10 Billion Valuation?

In today's world, most companies span several regions and sell across the world. As Foolish colleague Morgan Housel notes, 10 years ago, less than a third of S&P 500 revenue growth came from abroad. Today, that area makes up half of the S&P 500's growth.

And that number is growing. The truth is, investors regularly underestimate how much demand comes from abroad. More importantly, for large, multinational corporations that have already established a presence in their home markets, much of their future growth comes from abroad.

With that in mind, today we're looking at Canadian apparel company lululemon (Nasdaq: LULU). We'll examine not only where its sales and earnings come from, but how its sales abroad have changed over time.

Where Lululemon's sales were five years ago
Five fiscal years ago, Lululemon produced a whopping 92% of its sales within Canada.

Source: S&P Capital IQ. Data is for fiscal year ending in January 2006.

Where Lululemon's sales are today
Today, Lululemon has managed to move its sales base into America while continuing to grow its Canadian operations.

Source: S&P Capital IQ. Data is for fiscal year ending in January 2011.

Lululemon has done a phenomenal job in Canada, last fiscal year the company collected $372 million in sales from the country. To put that in perspective, if Lululemon collected the same amount of sales from each American as it did from every Canadian, its American sales would have been more than $3.4 billion instead of the $323 million Lululemon actually collected in the United States. At that level of sales, Lululemon could approach a billion dollars in annual profitability. That's a tall order, but does show the continuing expansion potential in America.

In fact, since the close of their last fiscal year, Lululemon has continued expanding in America to the point where 53% of the company's sales come from States. Additionally, while Lululemon has been working to grow its sales outside of North America, markets outside the U.S. and Canada accounted for only 4% of company sales last quarter. Right now, Lululemon's international presence is limited to 14 stores across Australia. While the company has in the past listed a Hong Kong showroom, it essentially has no presence in Asia and has no stores in Europe either.

And that's the central question for Lululemon investors, if the company can transition its success in Canada and the United States to other markets with high levels of consumer spending, it could absolutely grow into its valuation. However, if it can't expand the brand outside North America in the coming years, it's difficult to see a scenario where Lululemon can be worth more than its current $10 billion price tag.

Competitor checkup
One last point to check is how Lululemon's footprint compares with some of its peers:

Source: S&P Capital IQ. Results for most recently reported fiscal year.

In terms of geographic sales profile, Lululemon most closely mirrors fellow athletic apparel dynamo Under Armour, a company that collects 94% of sales from North America. Looking at the sky high P/Es on both companies, continued overseas expansion looks to be a central story on both Under Armour and Lululemon growing into their valuations.

Gap has less overseas exposure than many retail peers, but its U.S. concentration has been trending down somewhat in recent years. Back in 2007, the company was 80% U.S.-concentrated, compared to 77% today.

Finally, we see Nike as the industry gold standard of being able to create a global brand. The company has been able to establish a presence across almost every geography. Last fiscal year, Nike posted a whopping $2.7 billion in sales to emerging markets and another $2.1 billion to its Greater China region. Combined, those two markets are now even with Nike's sales to its Europe.

Keep searching for global opportunities
There's a reason companies are seeing outsized growth around the world; in the past decade, emerging market consumer spending grew 250%, leaving the growth rates of the U.S. and Europe in the dust. If you're an investor scanning the world for opportunities; look no further than our new report "3 Companies Set to Dominate the World." In the report, Fool analysts select three companies who have an international growth opportunity that's simply stunning. The report is free, but it won't be available forever, so get your copy by clicking here today!