I used Peter Lynchs One Up on Wall Street as a textbook each time I taught my stock market class over a period of almost 10 years. During that time, I learned his principles well, especially his advice to make use of the power of common knowledge. Essentially, Lynch advocates to always take notice of which products are flying off the shelves when you visit the mall and which merchants are mobbed versus those with low traffic.

The last time I was at my local mall, my wife and I went to Lululemon Athletica (NASDAQ: LULU ). We usually pay it a visit. Its her favorite place to shop. The store was jam packed and there was a long line at the cash register.

Despite increasing competition from big-name rivals like Gap (NYSE: GPS ) and Nike (NYSE: NKE ), Lululemon dominates a part of the growing $31 billion yoga and athletic apparel market. With total revenue of $1 billion in 2011, the company has lots of room to expand.

And expanding it is. The apparel maker — which currently operates about 200 stores, predominately in North America and Australia — is setting up shop worldwide. With showrooms in Hong Kong and the U.K. Lululemon is also entering 20 international markets across Europe and Asia.

The company is aiming to increase its market base by creating more apparel that appeals to men, as well as swimmers, bikers and outdoor adventurers. And it recently launched a spin-off company called Ivivva Athletica, which makes glittery dance-inspired outfits for teen girls.

With growing market share. the stock is hot from a technical perspective.

Shares have been in a major uptrend since hitting a low of $15.54 in August 2010. Since this time, the stock has gained about 374%! But I believe the shares still have plenty of room to run.

In late August 2012, the stock jumped nearly $14 in a week on upbeat second-quarter results. Soon after, shares retreated to important support around $65. The stock began rising again in November, and so far, continues to strengthen in December. Currently, it continues to climb toward the recent $78.96 peak, which is important resistance.

A basing formation appears to be forming marked by the late August $78.96 high and the October $65.09 low. The pattern will be completed if the $78.96 peak is exceeded.

According to the measuring principle for a basing pattern, calculated by adding the height of the pattern to the breakout level, shares could reach a new price target of $92.83 ($78.96-$65.09 = $13.87; $13.87+$78.96 = $92.83). At current levels, this target represents 27% potential gains.

The bullish technical outlook is supported by strong fundamentals. On Thursday, Dec. 6, the yoga apparel company reported upbeat third-quarter results. Because of strong online and in-store sales, revenue for the period rose 37% to $316.5 million, compared with $230.2 million in the comparable year-ago quarter. Analysts expected revenue of $305.3 million.

Same-store sales — an important metric of retail growth —increased 18% over the quarter. In comparison, the average figure for apparel retailers in the third quarter was 5.4%.

In the upcoming fourth quarter, analysts expect strong international sales will push revenue up 32% to $490.5 million, from $371.5 million in the comparable year-ago period. For the upcoming full year, analysts project revenue will rise 36.3% to $1.4 billion, compared with $1 billion last year.

Third-quarter earnings rose 44% to $0.39 per share, from $0.27 in the year-ago period. Analysts expected earnings of $0.37. For the upcoming fourth quarter, analysts estimate earnings will reach $0.75 per share, a 47% increase from $0.51 per share in the comparable year-ago quarter. Due to strong demand, driven by expanding international sales, analysts project full-year earnings will increase 44% to $1.82, from $1.26 in the prior year.

In addition to a solid fundamental outlook, the company has a strong balance sheet with $444.3 million in cash and no long-term debt. This financial liquidity gives Lululemon the ability to develop new products aimed at broader markets.

Risks to consider: As larger companies, like Gap and Nike try to encroach on Lululemons territory, it may be more difficult for Lululemon to win over customers — especially since the companys apparel is comparatively more expensive. However, as my wife will attest, the fabric and fit are far superior to the competition. As Lululemon continues to expand its store presence and apparel line, the company should be able to continue growing.

Recommended Trade Setup:

— Set stop-loss at $65.07, slightly below current support marked by the major uptrend line

— Set initial price target at $77.95 for a potential 6% gain

— If $77.95 is hit, increase price target to $92.83 for a potential 27% gain by spring 2013