If you want to compound wealth in the stock market, you can do so by buying an index fund. But investors can boost returns by picking market-beating companies to own shares in. For example, the Carter Bankshares, Inc. (NASDAQ:CARE) share price is up 39% in the last 1 year, clearly besting the market return of around 32% (not including dividends). So that should have shareholders smiling. Also impressive, the stock is up 30% over three years, making long term shareholders happy, too.

So let's investigate and see if the longer term performance of the company has been in line with the underlying business' progress.

View our latest analysis for Carter Bankshares

While the efficient markets hypothesis continues to be taught by some, it has been proven that markets are over-reactive dynamic systems, and investors are not always rational. 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.

During the last year, Carter Bankshares actually saw its earnings per share drop 64%.

Given the share price gain, we doubt the market is measuring progress with EPS. Indeed, when EPS is declining but the share price is up, it often means the market is considering other factors.

Carter Bankshares' revenue actually dropped 16% over last year. 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 graphic below depicts how earnings and revenue have changed over time (unveil the exact values by clicking on the image).

It's probably worth noting that the CEO is paid less than the median at similar sized companies. But while CEO remuneration is always worth checking, the really important question is whether the company can grow earnings going forward. If you are thinking of buying or selling Carter Bankshares stock, you should check out this free report showing analyst profit forecasts.

A Different Perspective

It's nice to see that Carter Bankshares shareholders have received a total shareholder return of 39% over the last year. Notably the five-year annualised TSR loss of 3% per year compares very unfavourably with the recent share price performance. The long term loss makes us cautious, but the short term TSR gain certainly hints at a brighter future. While it is well worth considering the different impacts that market conditions can have on the share price, there are other factors that are even more important. Take risks, for example - Carter Bankshares has 1 warning sign we think you should be aware of.

For those who like to find winning investments this free list of undervalued companies with recent insider purchasing, could be just the ticket.

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.