Investors looking into buying shares of individual companies can earn outsized returns over time.

For example, consider the Dividend Aristocrats, a list of 57 individual companies in the S&P 500 Index with 25+ consecutive years of dividend growth. The Dividend Aristocrats significantly outperformed the broader S&P 500 in the past 10 years, with lower volatility as well.

But investing in individual stocks requires more research than simply buying an index fund. At the least, investors should carefully analyze a company’s financial statements and quarterly earnings reports. One phrase that investors will see over and over in these financial reports is “year-over-year.”

Year-over-year is a very common, yet often misunderstood, concept in financial analysis.

What Is Year-Over-Year?

Put simply, year-over-year is the comparison of a particular financial metric from one quarter with the same quarter the previous year. Investors will see this phrase repeatedly in company financial reports. Each quarter, investors look forward to earnings season—when companies report their quarterly financial information to shareholders. Companies will usually, but not always, report revenue, earnings-per-share, and a slew of other numbers it the context of year-over-year, or y-o-y.

Sometimes, a company will report its results compared with the results of the previous quarter. A quarter-over-quarter comparison is also sometimes called a sequential comparison. Investors should be aware of the difference, as it could be possible to draw inaccurate conclusions about that company’s performance. Most often, year-over-year comparisons are more accurate, particularly if a company operates a seasonal business.

Why Investors Should Focus On Year-Over-Year Results

For example, consider specialty retailer Best Buy (BBY). In the 2018 fourth quarter (which represents over half the company’s full-year earnings) Best Buy generated adjusted earnings-per-share of $2.72. If investors compared this with the previous quarter, in which the company had adjusted EPS of $0.93, it would appear that the company’s earnings more than doubled. But on a year-over-year basis, Best Buy’s fourth-quarter EPS increased 12%. This is still certainly a respectable growth rate, but nowhere near the growth rate on a quarter-over-quarter comparison.

For any investor considering buying shares of an individual company, it is important to not only understand whether the company is growing or in decline, but also by how much.

Additionally, it is important to understand the nature of the underlying business, including seasonality. It is challenging enough to invest successfully even with all the relevant information in hand, as there are many unforeseen risks that can derail a stock.

But it is even more difficult for investors to be successful when they do not thoroughly understand the business in which they are investing.

Ben Reynolds is CEO of Sure Dividend. Sure Dividend helps individual investors build high quality dividend growth stock portfolios for the long run.