[1] A growth company typically has some sort of competitive advantage (a new product, a breakthrough patent, overseas expansion) that allows it to fend off competitors.
Growth stocks usually pay smaller dividends, as the companies typically reinvest most retained earnings in capital-intensive projects.
To be classified as a growth stock, analysts generally expect companies to achieve a 15 percent or higher return on equity.
Instead, he prioritizes companies with a durable competitive advantage and a high return on capital, rather than focusing solely on revenue or earnings growth.
However, like Buffett, Lynch also believes in not overpaying for stocks emphasizing that investors should use their "edge" to find companies with high earnings potential that are not yet overvalued.