I historically haven’t been too positive toward Lululemon Athletica inc. (NASDAQ:LULU). I’ve never shorted Lululemon stock, to be sure. The bull case for LULU stock has seemed modestly attractive at times. But the overall pressure in retail and competitors like The Gap, Inc. (NYSE:GPS) targeting Lululemon’s “athleisure” niche long have struck me as potential risks.

Indeed, I argued in December, as Lululemon stock cleared $80 for what seemed like the umpteenth time, that LULU was bound to stall out. The low 80s price level has served as resistance for some time and I predicted it would do so again.

But after Lululemon earnings on Tuesday afternoon, LULU stock finally has punched through that resistance, reaching an all-time high of $85 in premarket trading. And even this bear has to admit that Lululemon merits the big move — and very well may have further upside to come.

Lululemon Earnings

On the Lululemon Q4 conference call, chairman Glenn Murphy — standing in for former CEO Laurent Potvin, who resigned in February due to unspecified misconduct — joked that “this is the kind of quarter that you take, you laminate [and] you frame.”

Murphy isn’t wrong. Lululemon earnings crushed analyst consensus on the top and bottom lines. Revenue of $928.8 million rose 18%, 2 points better than expected. Comparable sales increased a hugely impressive 12%, against Street estimates of 8.6%. The key driver there was a 44% increase in direct to consumer revenue (albeit with two points of currency help).

Adjusted per-share earnings of $1.33 compares well to $1 the year before, and was 6 cents better than consensus. Margins improved sharply in the key quarter as well, with operating margin notably rising 290 basis points to 27.8%.

2018 guidance looks solid as well, if not quite as impressive. Lululemon expects revenue of $2.985 to $3.022 billion, ahead of a $2.94 billion consensus. EPS is expected to come in at $3.00-$3.08, with the Street at $3.03 ahead of the report. Lululemon expects a 29% tax rate next year, which might be higher than analysts had modeled, and might explain the more limited upside to bottom-line guidance relative to the top line.

Still, as far as the overall numbers go, it’s hard to argue with Murphy. Lululemon had a truly impressive quarter. Looking closer, the quarter seems to support the bull case for LULU stock.

The Bull Case for LULU Stock

The big news in the quarter is the performance of Lululemon’s re-launched website. The 44% comp sales increase is hugely impressive. But it’s not just the sales increase that supports optimism toward LULU. Lululemon is driving those digital sales while raising margins. Product margin rose 130 bps in the quarter — a big number considering the figure had risen 410 bps the year before.

That margin expansion is something other retailers simply haven’t been able to do. More often in the space, omnichannel retailing has depressed margins, as retailers need to operate both brick-and-mortar stores and spend on supply chain, labor and marketing for their online efforts.

So that’s one piece of good news. The other is that Lululemon had a strong quarter in precisely the areas it needs to drive multi-year upside in Lululemon stock. In Asia, comparable sales rose a stunning 52% — including, per the Q4 call, a 100%-plus increase in online revenue. European revenue rose 44%. The men’s business comped double-digits worldwide.

For Lululemon to consistently and sustainably see a valuation north of the current $11 billion-plus, it can’t just sell to American women. The multi-year bull case requires success overseas and with a wider demographic. The good news is that Q4 — and indeed full-year — results support that case. And the fact that business has improved as the year rolled on sets the company up well for fiscal 2018.

How High Can Lululemon Stock Go?

At the premarket price near $85, LULU stock isn’t cheap. Backing out the company’s ~$1 billion in cash — over $7 per share — the stock trades at over 25x even the high-end of FY18 EPS guidance.

That’s a big number in the retail space. There aren’t too many peers trading above that type of multiple; one of the few is Canada Goose Holdings Inc (NYSE:GOOS), which is smaller and earlier in its growth cycle. This is a sector where even well-known stocks like GPS, Express, Inc. (NYSE:EXPR) and American Eagle Outfitters, Inc. (NYSE:AEO) are trading at 11-12x forward multiples.

So Lululemon still doesn’t have a lot of room for growth to slip. But it also has opportunities that few American retailers have at the moment, most notably overseas. And if the company can hit its mid-term targets, there’s still room for Lululemon stock to climb. Lululemon is looking for $4 billion in sales by FY20, against ~$3 billion this year. And it expects operating margins to clear 20%, against 19% in FY17.

That combination suggests EPS, with some help from share repurchases, could climb as much as 75%. That would get EPS toward $4.50. Assuming LULU closes the decade with closer to $10 per share in cash, there’s a clear path toward $100-plus, 20%-plus upside from current levels. A few more quarters like Q4 could push the stock even higher, particularly if the P/E multiple stays in the mid-20s.

With LULU finally breaking through resistance, there’s a technical case for short-term optimism as well. The only question is whether investors trust the story enough to take on the risks embedded in the sector, and in valuation. After the quarter Lululemon just posted, they very likely will.

As of this writing, Vince Martin has no positions in any securities mentioned.