It used to be a joke. Add "dot com" to a company's name and it would be assured a spectacular stock market valuation. Last week the shares of China.com, a group of Chinese language Web portals, more than tripled on its first day of trading on the US Nasdaq market.

But US investors are becoming more discriminating. Of the 70 or so Internet companies that made their stock market debuts in the US this year, about one-third are now trading below their offer price. Some have fallen by up to 45 per cent.

The difficulty for investors trying to pick winners from losers is that there is no clear pattern. Companies that have emerged as winners encompass a number of different types of Internet businesses.

Top performers in the past few months include: Priceline.com, a website service that enables consumers to set the price they are willing to pay for airline tickets and hotels; Ariba, a company that establishes electronic marketplaces for business-to-business electronic commerce; and Marketwatch.com, an Internet business news publisher.

Marketwatch.com had gained 244 per cent from its January initial public stock offering by mid-June. While Portal Software, a provider of billing software to electronic merchants, rose 228 per cent in the seven weeks following its May stock offering.

Portal and Ariba are examples of technology or "tools" suppliers to the fast-growing electronic commerce market. Such companies are known as the "arms dealers" of the Internet: they profit no matter which Internet merchants prove to be winners. Both Portal and Ariba continue to face significant competition, but they have progressed by gaining "first mover" advantage.

Getting to market first is not a sure-fire path to success on the Internet any more than it is in any other sector. However, in segments where companies can achieve a technological advantage by, for example, developing software in advance of their competitors, they can maximise their opportunities.

Marketwatch.com's share price rise can be attributed to the popularity of using the Internet to gather financial information, both by investors and by businesses. Use of financial services and information resources is one of the fastest growing applications of the Internet.

Priceline.com represents the category of electronic merchants that are creating new business models for online trading that depart from traditional "fixed price" selling. Similarly, online auctions have caught the imagination of Net users and investors.

Yet picking winners among the raft of Internet companies coming to market is just the first challenge for private investors. The entire sector remains subject to intense volatility, partly because Internet stocks are widely traded by online amateur traders. A stumble by one of the big names in the Internet sector, such as Yahoo or eBay, could bring down the valuations of the entire sector.

Moreover, some stock market analysts believe that Internet stocks are sure to undergo through a period of "correction" in the not too distant future.

If and when this happens, traditional methods of evaluating stocks, based upon financial performance rather than hazy future prospects, may begin to be applied to the Internet stock market neophytes.