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The medical device company Cynosure Inc. (NASDAQ: CYNO) has been garnering more and more interest from biotech traders on its bullish momentum, which has brought the stock 133% higher since the start of the year.

The hype started at the end of January, after the FDA gave clearance for commercial distribution of the company's new aesthetic medical device known as the Cellulaze Workstation.

Cellulaze is the first approved minimally invasive device that drastically improves the appearance of cellulite, which is the unwanted change in women's skin appearance after a certain age. There is an enormous unmet demand for effective cellulite treatments, since many of the existing treatments are either ineffective or overly invasive in some way. Cellulaze has not only proven to be very effective in cellulite treatment, but is a completely non-invasive laser therapy. The market was clearly excited once it was confirmed that Cellulaze was going to be brought to market, tacking on about $185 million to the company's valuation since the FDA clearance.

After a brief slide, CYNO buying picked up again on intense volume following the company's Q3 2012 report, which confirmed the company's optimistic growth prospects with some hard data. Cynosure's total revenues increased by 31% relative to Q3 2011, reaching a high of $37.1 million. As you might expect, a lot of this growth came from Cynosure's laser products (the bulk of their revenue actually), which includes Cellulaze.

Laser revenue growth was 54% in North America in the same time period (about $8.4 million higher in Q3 2012 versus Q3 2011, a total of $31 million in the last quarter), driven primarily by sales growth in Cellulaze. Growth is slower outside of the United States, but we're seeing a very favorable trend in the company's overall profit margins. In Q3 2012, Cynosure posted 58% versus 56% in Q3 2011 despite increases in R&D and marketing expenses.

You might think that the extra $185 million that the market added to Cynosure's market cap overstated Cellulaze's potential, but it's important to realize that the new product has only been available for ~8 months. If you consider Cellulaze with a reasonable rate of double-digit revenue growth over the next few years, the market's implicit valuation of the new device makes a lot more sense. If Cellulaze performs to expectation, the device will basically drive Cynosure's overall revenue growth single-handedly. As implied earlier, this big potential has been baked into CYNO stock to some extent, although some CYNO bulls maintain that Cellulaze has far more potential than the market currently thinks. This is based on the notion that Cellulaze is probably the best cellulite treatment currently available, which caters to the enormous portion of North America's female population that will develop cellulite at some point in their life.

Despite the obvious potential for Cellulaze, particularly in the United States (the biggest cosmetics market in the world), there are some signs that we may be getting a bit too optimistic on CYNO. Traders who are more contrarian in nature may be especially concerned that short interest is drying up quite rapidly. Using data from NASDAQ, note that as of October 15th short interest is down to 336,875 shares (with only 3.37% of float). Total shares short have been in consistent decline since July 31st, when a total of $458,042 shares were being shorted. Trading volume on shares of CYNO has also been rising recently, which means that there's much technical trading risk for the bears since they can unravel their collective position a lot faster.

Anyone who missed CYNO's big rally this year should exhibit some caution, since a lot of the hype was (and is) associated with the sales potential of Cellulaze, which makes the stock relatively vulnerable to financial data. Even though the full market potential for Cellulaze is expected to be enormous, as mentioned earlier, Wall Street has already raised the bar quite high for Cynosure. Even if the company is unlikely to disappoint, it's possible that Cellulaze could miss expected sales figures in future quarters for a variety of reasons. Investors who are more conservative, or value-oriented, should probably take this into account before buying CYNO in its current popularity. Momentum traders on the other hand have an interesting bull-controlled stock to play in upcoming trading sessions.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.