"Let's run some tests." That's a familiar phrase for most people who've ever visited a doctor. As physicians increasingly rely upon pathology labs for assistance in diagnosis and treatment, those labs are under growing pressure to process ever more tests without compromising accuracy.

Ventana Medical Systems (NASDAQ:VMSI) targets those pathology labs with automated systems that not only save time but also offer greater accuracy than hand-prepared slides can provide. Ventana also sells the high-margin reagents (chemicals or substances used in chemical reactions) that are necessary to perform those tests. With what amounts to a razor/razor-blade business model, Ventana has leveraged this trend of increased testing into a near doubling of revenue since 2001.

Total sales for the fourth quarter grew 27%, and sales of the higher-margin reagents grew even faster, at 31%. Operating margins climbed to over 22% in the quarter, above the full year's 16.8% (before special charges). The company expects to see continued growth in 2005, with revenues climbing at over a 20% clip.

Among the wide-ranging uses for automated systems in pathology labs, cancer is a major area of opportunity. Everyone knows that there are different types of cancers -- lung, breast, pancreatic, and so on -- but not everyone realizes that there are "subtypes" within those groups that respond differently to specific medications and can be identified with advanced testing.

For instance, Ventana sells a diagnostic product that allows physicians to identify patients who will benefit from Novartis' (NYSE:NVS) drug Gleevec. Other similar tests identify good candidates for life-sparing drugs like Genentech's (NYSE:DNA) Herceptin or Erbitux, the cancer drug from Bristol-Myers Squibb (NYSE:BMY) and ImCloneSystems (NASDAQ:IMCL).

Not content to develop just specialty tests, Ventana is also in the process of building itself into a one-stop shop for pathology labs' needs. With roughly half of the market for advanced staining systems, Ventana is aggressively targeting growth in markets such as primary staining and image analysis. The company also actively targets the drug-development market, though that's still a relatively small area of business for Ventana today.

While smaller medical-technology companies almost always look expensive, Ventana's popularity with the growth-and-momentum crowd have made it even more expensive than most. With a trailing price-to-earnings ratio of nearly 60 and a price-to-sales ratio of more than 7, it's not surprising to see a 10% short position in these shares.

Whether Ventana's stellar growth record justifies these lofty levels is up to individual Fools to decide for themselves. Though there's no denying the growth Ventana has posted, this Fool would rather wait for a cheaper window of opportunity.

Fool contributor Stephen Simpson, CFA, has no ownership interest in any stocks mentioned.