Editor's Note: This column was originally published on Oct. 26, as an alert to subscribers of Stocks Under $10

TriPath Imaging

(TPTH)

shares traded down 12% Tuesday to close at $6.60 a share after management said it expects revenue for the full year to be in the range of $68 million to $71 million, down from its initial forecasts for revenue of $72 million to $78 million.

Despite that slide, we believe the company is worth a look, given its exceptional earnings growth forecasts and under-the-radar profile. We are intrigued by the company's pipeline of pending FDA rulings, and Tuesday's trimming of $37 million in market cap makes the stock even more compelling.

TriPath, which develops products such as Pap smears for cancer screening, has been anything but quiet in recent months. The news screen on our quote system was filled with references to the FDA, a good omen, as the agency usually drives the intermediate-term action of small medical companies like TriPath. Back in August, the company announced that it had filed an application with the FDA for approval of its HPV-testing device, which detects the often preventable form of cervical cancer stemming from HPV, or human papillomavirus.

Approval would give the company access to a huge and expanding market for its liquid-based testing platform, which uses

Digene's

(DIGE)

industry-leading hc2 High-Risk HPV DNA Test. In addition, the company also submitted data for its FocalPoint GS Imaging System that is used to distinguish between normal and abnormal Pap smears.

Beyond the potentially explosive FDA pipeline at TriPath, the company's current business isn't all that shabby. TriPath has agreements with just about every major diagnostic institution to use its test kits. On Oct. 11, LabOne became TriPath's most recent addition to the top-tier group of partners and customers when it signed on to use its liquid-based Pap test, SurePath, on a nationwide basis. Just two days earlier the U.K.-based Cheshire and Merseyside Strategic Health Authority agreed to use the company's SurePath Pap test in 90% of its total annual cervical cancer screening requirements. (The company generated 26% of its 2003 sales overseas.)

TriPath is in a David-and-Goliath-like battle with competitor

Cytyc

(CYTC)

, which clearly dominates the Pap smear market with its ThinPrep test. Cytyc is forecast to do $390 million in sales this year vs. TriPath's $70 million, and last week Cytyc was selected by

LabCorp

(LH) - Get Report

, a $6 billion testing giant in the U.S., to use its ThinPrep imaging system on a nationwide basis. Cytyc is commanding a premium multiple, trading at 7.5 times this year's sales estimate, while TriPath is currently trading hands at only 3.5 times 2004 sales forecasts.

But we believe TriPath's tremendous growth profile, coupled with the 40% decline in the stock from its February high, should help close the valuation gap in coming months. For one, TriPath is expected to earn 23 cents in 2005, or 22 cents more than this year's revised outlook. The company also has no debt on its balance sheet, and despite its lowered guidance, it is going to report its first free cash flow positive quarter on Nov. 4. TriPath rates better than Cytyc in our proprietary Alpha Factor as well. There are only 27 million shares in the float and four analysts following the stock, compared with 110 million tradeable shares and eight analysts covering Cytyc.

Although we aren't taking any action on Tuesday's decline, we are adding TriPath to our watch list and will look to pounce on any further weakness in the stock should we have the funds and space in the portfolio.

Please note that due to factors including low market capitalization and/or insufficient public float, we consider TriPath to be a small-cap stock. You should be aware that such stocks are subject to more risk than stocks of larger companies, including greater volatility, lower liquidity and less publicly available information, and that postings such as this one can have an effect on their stock prices.

William Gabrielski is a research associate at TheStreet.com and is accredited with a Series 7 license. In keeping with TSC's editorial policy, he doesn't own or short individual stocks. He also doesn't invest in hedge funds or other private investment partnerships. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Gabrielski welcomes your feedback and invites you to send your comments to

william.gabrielski@thestreet.com.

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David Peltier is a research associate at TheStreet.com In keeping with TSC's editorial policy, he doesn't own or short individual stocks. He also doesn't invest in hedge funds or other private investment partnerships. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Peltier welcomes your feedback and invites you to send your comments to

david.peltier@thestreet.com.

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