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). To wit, the Westpac Banking Corporation (ASX:WBC) share price is 31% higher than it was a year ago, much better than the market return of around 9.2% (not including dividends) in the same period. So that should have shareholders smiling. However, the stock hasn't done so well in the longer term, with the stock only up 14% in three years.

The past week has proven to be lucrative for Westpac Banking investors, so let's see if fundamentals drove the company's one-year performance.

Check out our latest analysis for Westpac Banking

In his essay The Superinvestors of Graham-and-Doddsville Warren Buffett described how share prices do not always rationally reflect the value of a business. One flawed but reasonable way to assess how sentiment around a company has changed is to compare the earnings per share (EPS) with the share price.

During the last year Westpac Banking grew its earnings per share (EPS) by 1.9%. The share price gain of 31% certainly outpaced the EPS growth. This indicates that the market is now more optimistic about the stock.

You can see below how EPS has changed over time (discover the exact values by clicking on the image).

Dive deeper into Westpac Banking's key metrics by checking this interactive graph of Westpac Banking's earnings, revenue and cash flow.

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 incorporates the value of any spin-offs or discounted capital raisings, along with any dividends, based on the assumption that the dividends are reinvested. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. We note that for Westpac Banking the TSR over the last 1 year was 40%, which is better than the share price return mentioned above. The dividends paid by the company have thusly boosted the total shareholder return.

A Different Perspective

We're pleased to report that Westpac Banking shareholders have received a total shareholder return of 40% over one year. And that does include the dividend. That's better than the annualised return of 5% over half a decade, implying that the company is doing better recently. Someone with an optimistic perspective could view the recent improvement in TSR as indicating that the business itself is getting better with time. It's always interesting to track share price performance over the longer term. But to understand Westpac Banking better, we need to consider many other factors. Consider risks, for instance. Every company has them, and we've spotted 1 warning sign for Westpac Banking you should know about.