If you want to compound wealth in the stock market, you can do so by buying an index fund. But one can do better than that by picking better than average stocks (as part of a diversified portfolio). For example, the M&T Bank Corporation (NYSE:MTB) share price is up 41% in the last 1 year, clearly besting the market return of around 26% (not including dividends). That's a solid performance by our standards! It is also impressive that the stock is up 32% over three years, adding to the sense that it is a real winner.

While the stock has fallen 5.2% this week, it's worth focusing on the longer term and seeing if the stocks historical returns have been driven by the underlying fundamentals.

View our latest analysis for M&T Bank

To paraphrase Benjamin Graham: Over the short term the market is a voting machine, but over the long term it's a weighing machine. One imperfect but simple way to consider how the market perception of a company has shifted is to compare the change in the earnings per share (EPS) with the share price movement.

Over the last twelve months, M&T Bank actually shrank its EPS by 22%.

Given the share price gain, we doubt the market is measuring progress with EPS. Therefore, it seems likely that investors are putting more weight on metrics other than EPS, at the moment.

Unfortunately M&T Bank's fell 9.0% over twelve months. So using a snapshot of key business metrics doesn't give us a good picture of why the market is bidding up the stock.

The company's revenue and earnings (over time) are depicted in the image below (click to see the exact numbers).

M&T Bank is well known by investors, and plenty of clever analysts have tried to predict the future profit levels. So we recommend checking out this free report showing consensus forecasts

What About Dividends?

When looking at investment returns, it is important to consider the difference between total shareholder return (TSR) and share price return. The TSR is a return calculation that accounts for the value of cash dividends (assuming that any dividend received was reinvested) and the calculated value of any discounted capital raisings and spin-offs. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. In the case of M&T Bank, it has a TSR of 45% for the last 1 year. That exceeds its share price return that we previously mentioned. The dividends paid by the company have thusly boosted the total shareholder return.

A Different Perspective

It's nice to see that M&T Bank shareholders have received a total shareholder return of 45% over the last year. Of course, that includes the dividend. Since the one-year TSR is better than the five-year TSR (the latter coming in at 6% per year), it would seem that the stock's performance has improved in recent times. In the best case scenario, this may hint at some real business momentum, implying that now could be a great time to delve deeper. It's always interesting to track share price performance over the longer term. But to understand M&T Bank better, we need to consider many other factors. Even so, be aware that M&T Bank is showing 1 warning sign in our investment analysis , you should know about...

If you are like me, then you will not want to miss this free list of undervalued small caps that insiders are buying.

Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on American exchanges.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.