Members of our Inner Circle service often ask for our advice on Canadian stock picks they are thinking of buying that we don’t cover in our newsletters. These companies range from the most speculative penny mines to large multinational corporations.

For example, an Inner Circle member recently asked for our advice on athletic-clothing maker lululemon athletica. The Canadian stock pick’s revenue and earnings rose sharply in its latest quarter, but it operates in a very competitive market. To give you a sense of how the service works — and how you can profit from it — I’d like to share this question, and our answer, with you. I hope you enjoy and profit from it.

Q: Pat: what do you think of lululemon as a stock? My wife loves their clothes.

A: lululemon athletica Inc., $46.02, symbol LLL on Toronto (Shares outstanding: 70.7 million; Market cap: $3.3 billion), is a Vancouver-based designer and seller of yoga-inspired athletic wear and accessories. The Canadian stock pick’s shares were first sold to the public at $18 each, and began trading on Toronto in July 2007.

Dennis “Chip” Wilson founded lululemon in 1998, after noticing that more women were taking up yoga and other physical activities. Wilson had 20 years of experience making surf and snowboard clothing. He believed that the all-cotton fabrics then used for yoga were inappropriate.

When Wilson opened the first lululemon store in the Kitsilano beach area of Vancouver in 2000, he positioned its staff not just as salespeople, but as “lifestyle” educators. Wilson invited yoga, Pilates, fitness and dance instructors to join lululemon’s “R&D team,” and give feedback on its apparel, in return for a 15% discount. He also recruited some of them to appear on lululemon’s posters, web site and postcards.

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lululemon has also developed its own stretch fabrics, such as Luon, its signature fabric, and Silverescent, which uses silver yarn that has anti-bacterial qualities (which lululemon calls “anti-stink”). As well, all of lululemon’s athletic wear has premium features, such as flat seams, which reduce chafing.

The company operates 45 stores in Canada (44 corporate and one franchise), and 74 stores (70 corporate and four franchises) in the U.S. It also has nine franchises in Australia, bringing its total stores to 128. In April 2008, the company decided to focus on the North American market, and closed its four stores in Japan. lululemon plans to open 20 to 25 more stores in North America during its 2012 fiscal year, which ends January 31, 2012.

In the three months ended August 1, 2010, lululemon’s revenue rose 55.8%, to $152.2 million from $97.7 million a year earlier. (All figures except share price and market cap in U.S. dollars.) Same-store sales rose 38%. If you exclude the impact of foreign-exchange rates, same-store sales would have risen 31%. Earnings jumped 135.7%, to $21.8 million, or $0.30 a share, from $9.2 million, or $0.13 a share.

The company holds cash of $178.2 million, or $2.52 a share. It has no long-term debt.

lululemon operates in a competitive and fickle market. The Canadian stock pick’s share price reached a high of $58.77 in October 2007. It then drifted down to a low of $5.60 in March 2009. Since then, it has rebounded to its current $46.02. However, the stock still trades at a high 38.4 times the company’s forecast fiscal 2011 earnings of $1.20 a share.

Our buy/sell/hold advice on lululemon, based on the company’s strong brand and its current prospects, is only available to members of our Inner Circle. You can’t get it anywhere else!

If you’re looking for authoritative advice on investment issues, or fundamental analysis of stocks you’re considering buying (or selling), you should join my Inner Circle service. When you do, you always get clear, concise investment advice that’s 100% independent, and untainted by commissions or other undisclosed influences. I swear to it. Click here to learn more.