Pat McKeough responds to many requests from members of his Inner Circle. Every week, his comments on the most intriguing questions of the past week go out to all Inner Circle members. Each week, we offer you a highlight from these Q&A sessions. Today, an examination of whether an iconic coffee shop operator rates as a good stock investment.

Q: Pat: Can I have your recommendation on Starbucks? Thanks.

A: Starbucks Corp. (symbol SBUX on Nasdaq; www.starbucks.com) is a leading seller and roaster of specialty coffee.

Starbucks has 8,514 company-operated stores and 5,885 licensed outlets in over 60 countries. Stores in the Americas supply 69% of its sales, followed by China and the Asia-Pacific region (13%), and Europe, the Middle East and Africa (6%). It gets a further 9% of its sales by selling coffee and other beverages through supermarkets and 3% from other activities, like online sales.

In its fiscal 2015 second quarter, which ended March 29, 2015, Starbucks’ sales rose 17.8%, to $4.6 billion from $3.9 billion a year earlier. That’s partly because it opened 210 stores, net of closures, during the quarter. On a same-store basis, sales rose 7%, reflecting a 3% increase in the number of transactions and a 4% rise in selling prices. Starbucks’ sales are also benefiting from stronger demand for breakfast and lunch foods.

Earnings gained 15.9%, to $494.9 million from $427.0 million. Due to fewer shares outstanding, earnings per share rose 17.9%, to $0.33 from $0.28 (all per-share amounts adjusted for 2-for-1 stock split in April 2015).

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Strong brand enhances Starbucks’ potential in overseas markets, especially China

For all of fiscal 2015, the company expects to open 1,650 stores and upgrade existing locations. China and other parts of Asia will account for 52% of the new outlets, followed by the Americas (36%) and Europe (12%).

Meantime, the company continues to develop innovative new services. For example, it now lets customers use their smartphones to place orders before picking them up at their local Starbucks store. It is also testing a home-delivery service.

Starbucks can easily afford to keep investing in its business: it holds cash and investments of $2.2 billion, or $1.45 a share, and its long-term debt is just $2.05 billion, or 3% of its market cap.

The new stores and the company’s successful introduction of new food and beverages should raise its earnings by 15.9%, to $1.57 a share, in 2015. The stock trades at 32.8 times that forecast. That’s a high p/e ratio for a coffee-shop operator, but it’s still reasonable in light of Starbucks’ strong brand and potential in overseas markets like Brazil, India and, in particular, China. All of these countries have rising numbers of young, affluent consumers.

The $0.64 dividend yields 1.2%.

Inner Circle recommendation: HOLD.