PARTY GAMING, a Gibraltar-based internet poker giant, which arrives on the stock market tomorrow, has single- handedly rekindled interest in investing in new issues.

Research by Digital Look, an online data firm, shows that new issues have on average outpaced established shares in the past 18 months. But that average conceals some flops, so investors need to be vigilant.

Party Gaming, the world’s largest internet-poker operator, is also one of the stock market’s most controversial arrivals.

Pre-tax profits have risen from $5.8m (£3.2m) three years ago to $371.1m last year, and they are expected to exceed $500m this year.

However, there are risks — mainly that it might be banned in its most lucrative territory. Online gambling is illegal in many countries including the US, where Party Gaming makes nearly 90% of its profits.

The investor prospectus states that the company and its directors “rely on the apparent unwillingness or inability of regulators generally to bring actions against businesses with no physical presence in the country”.

Richard Hunter at Hargreaves Lansdown Stockbrokers said: “We are keen on the prospects for the gaming sector as a whole, but not for Party Gaming because there are such big risks.

“And it may be a one-trick pony. Around 90% of the company’s profits come from Party Poker, so if any successful competitors appear they could have a big impact on revenue.”

Party Gaming may not be suitable for many private investors, but investing in a company that is due to float on the stock market can reap good rewards.

Digital Look has found that companies that have floated since the beginning of 2004 have outperformed the market.

New issues have risen 18% since the beginning of last year, compared with the FTSE All-Share index’s 15% gain.

Companies that launched onto the Alternative Investment Market (AIM) have risen 32% over the same period, beating the FTSE AIM index, which is up 19%.

Some stocks have done spectacularly. White Nile, the oil- exploration company headed by former England cricketer Phil Edmonds, has surged 1,000% since it floated in February.

However, investing in a new issue is risky. Shares in United Carpets have plummeted 55% since it floated in February, and Petsome has lost 43.75% of its value in the last three months.

So you have to do your homework on new issues, just as with any other potential share purchase.

A problem faced by private investors is that prior to listing, many companies only let institutions register for shares. Therefore, the earliest that individuals can buy is the first day of trading — and by then the shares may already be riding high.

Before flotation, shares are generally priced keenly to attract investors, so they have a good start on the market.

Justin Urquhart Stewart at Seven Investment Management, a wealth manager, said: “There is not much difference between buying shares on the first day of trading and taking a punt on the 2.30 at Newbury.

“It is much better to wait until the stock settles down a bit — you can see how the market reacts to it, giving you a clearer indication of how it might do.”

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