Lululemon falls after analyst says stock is priced fairly

Lululemon shares fell $1.27, or 3.6 percent, to $34.33. The stock has traded between $21.25 and $60.70 since the company's initial public offering priced at $18 in July 2007.

Stifel Nicolaus & Co. Richard Jaffe initiated coverage of the Canada-based company, which specializes in sportswear for yoga enthusiasts, with a "Hold" rating.

He said the company is capitalizing on a growing trend of healthy living, exercise and stress reduction, a movement led by women -an underserved demographic for sports apparel companies.

The analyst predicted annual earnings growth of about 69 percent in 2008 and between 25 percent to 40 percent through 2010. Jaffe also expects the company to expand by nearly fourfold to total about 300 stores in North America.

"We believe lululemon has been able to mitigate some of the inherent risk of an apparel retailer by focusing on technologically advanced, activity-specific clothing and not trend-driven, fashionable apparel," Jaffe said.

He said the company's "good news," however, is already reflected in its stock price.

Also Tuesday, ThinkPanmure analyst Suzanne B. Price predicted that Lululemon will be able to withstand increased market competition. She said the company has a competitive edge over competitors like Nike and Under Armour because it can afford to spend more on higher-quality clothing and controls the customer's shopping experience through its own stores.