Owning Wesfarmers Ltd (ASX: WES) stock has been a market-beating investment in the last 12 months. Wesfarmers shares rose 23% in the past year, compared to 11% for the S&P/ASX 200 Index (ASX: XJO), as the chart below shows.

It appears investors love Wesfarmers's businesses, which include big names like Bunnings, Kmart, Officeworks, Priceline, and Target. It also owns chemicals, energy, and fertilisers (called WesCEF) and an industrial and safety division.

In light of the company's ongoing positive sales performance, investors may be wondering whether it's time to invest significant sums into the ASX retail share before a possible RBA rate cut in the next few months.

I don't know when the RBA will cut rates, but I do know a quality business when I see one.

It's a great business

There are a number of compelling reasons to like Wesfarmers stock as in investment, in my view.

Firstly, its operating businesses are high-quality. I'd say Bunnings, Kmart, and Officeworks are leaders in their respective segments of Australian retail. Their scale allows them to offer customers great-value products and also deliver a good operating profit (EBIT) margin.

Second, these businesses generate pleasing returns on the money invested in them. This is good for shareholders, particularly as new profit generated can be reinvested for a solid return to grow profit further. In FY24, the return on capital (ROC) for Bunnings Group, Kmart Group, and Officeworks was 69.2%, 65.7%, and 18.7%, respectively.

In my opinion, those ROC numbers show how Wesfarmers is one of the best retailers in Australia.

I also like how Wesfarmers is trying to grow its operations and profit by pursuing different strategies.

Bunnings is expanding into different product categories, such as pet care and auto care. Kmart aims to grow its Anko brand internationally. And in the last few years, Wesfarmers has expanded into new sectors, such as lithium mining and healthcare.

Putting all these elements together, I think Wesfarmers' existing core businesses are impressive and it's regularly adding new growth avenues.

Is now a great time to invest in Wesfarmers stock?

I believe it's best to invest in ASX retail shares when conditions are weak rather than when sales are booming.

These aren't booming conditions, but I'm not seeing overall weakness. At the annual general meeting (AGM), Wesfarmers revealed that Bunnings and Kmart sales were still growing at a similar pace to the second half of FY24.  

In terms of valuation, the company is not as cheap as it was 12 months ago – the price/earnings (P/E) ratio has increased.

According to the Commsec forecast, the company could generate earnings per share (EPS) of $2.77 in FY26. This puts the current Wesfarmers stock price at less than 26x FY26's estimated earnings.

I'd say Wesfarmers is still a long-term buy at this price, but I wouldn't call it a big bargain either.