At noon on Monday, Cayman Islands-based China Medical Technologies (NASDAQ:CMED) was up 15.8% to $38.28 on news that third-quarter revenue rocketed 61.5% year over year, and net income soared 41.8%. So what's up?

China Medical's core product is its high-intensity focused ultrasound (HIFU) system. It accounted for 69.5% of revenue in Q3. HIFU is a non-invasive treatment of both cancerous and benign solid tumors. According to the company, it heats targeted tissue up to 158 degrees, killing the tumor. The best part? There's reportedly no anesthesia required, there's little patient discomfort, and the hospital stay is much shorter (making the procedure more cost effective than competing treatments). The company will begin FDA application preparation in 2006.

The balance of the company's revenue comes from the enhanced chemiluminescence immunoassay (ECLIA) system, which consists of an analyzer and reagent kits. ECLIA is an advanced in vitro diagnostic system commonly used in North America and Europe, but the technology is relatively new in China. So far, China Medical offers 38 reagent kits --including kits designed to detect SARS and diabetes -- and has more in development.

The target markets for these products are quite large, and neither product has substantially penetrated its market. There is no big-name competitor for HIFU, but ECLIA is available from Abbott Lobs (NYSE:ABT), Johnson & Johnson (NYSE:JNJ), and Bayer (NYSE:BAY).

There are warnings signs for investors to consider. There are no long-term HIFU studies, and some studies are not randomized and/or include small patient populations. So if negative test data were to materialize, it could have a significant impact on the company's sales. Also, sales are concentrated; 66.5% of last year's revenue came from five distributors, and there were no long-term contracts established with these companies.

The company went public at $15 per share in August 2005. So at today's price, the stock is up over 150% in less than a year. The company's fiscal 2006 guidance is for earnings of between $0.79 and $0.86 a share -- pricing the stock at 48.5 times low guidance. Given the current growth rate and the company's small market share in its targeted markets, these shares might well represent an interesting prospect. That said, the apparent absence of a full data set in its test populations raises a possible threat as to the viability of the products -- and could put a serious crimp in its growth prospects.

Fool contributor W.D. Crotty does not own any shares in the companies mentioned. Click here to see The Motley Fool's disclosure po licy.