Again in March I made a decision the very best share to purchase for fast, sustainable progress was good infrastructure specialist Costain Group (LSE: COST). I’m up round 68% since then, together with dividends.

Traders who received in early have executed even higher. Over one yr, the Costain share price has climbed 78.45%. It’s up a mighty 143.82% over two years.

That form of efficiency is at all times prone to catch the attention, but in addition triggers my suspicions. Absolutely it will probably’t preserve climbing at that form of pace, can it?

Can the share price preserve flying?

But the shares don’t look significantly costly, buying and selling at 8.52 occasions earnings. That’s comfortably beneath the FTSE All-Share common of 14.6 occasions.

Additionally, Costain is sitting on a £166m web money pile. That’s nearly 60% of its £284m market cap, which provides a layer of safety. Higher nonetheless, it’s incomes a gradual stream of curiosity on the cash, though this may fall when the Financial institution of England begins chopping base charges additional.

Its first-half outcomes, revealed on 21 August, revealed a “very healthy” guide of £4.3bn following a string of recent contract wins.

That’s necessary as a result of Costain’s revenues are prone to be bumpy as they rise and fall relying on contract begins and completions. First-half revenues really dipped 3.8% to £639.3m within the six months to 30 June after it completed the primary works at Gatwick station.

Adjusted operated earnings nonetheless rose 8.7% to £16.3m. Working margins jumped 20 foundation factors to 2.5%. Clearly, that doesn’t go away a lot room for error. The board is conscious of the chance and is aiming to extend margins to three.5% in 2024 and 4.5% in 2025. That’s nonetheless tight although.

This FTSE inventory has additional to go

Lest we overlook, Costain has been risky previously. Its shares crashed greater than 80% in 2020 because the pandemic disrupted operations and hit profitability. It additionally took a £90m hit on two large contracts, the Peterborough & Huntingdon fuel compressor and A465. Administration subsequently overhauled its contracting processes however bidding for infrastructure initiatives will at all times be fraught with danger.

One other situation is that the UK financial system remains to be riddled with uncertainty, as inflation proves sticky, progress slows and potential tax hikes loom. This might hit funds for infrastructure merchandise.

Costain’s shares slumped on 10 September when Dubai-based Al Shafar Normal Contracting Firm (ASGC) bought simply over 41.6m shares to institutional buyers. That’s equal to fifteen% of the issued share capital. Nevertheless, the share price has principally recovered from that short-term hit.

Costain axed its dividend in the course of the pandemic however restored it in 2023, as this desk exhibits. 

Chart by TradingView

The forecast 1.3% yield isn’t nice however provided that it’s coated 9.1 occasions by ahead earnings, I’m optimistic it would enhance steadily over time. Costain has simply began a £10m share buyback too.

Brokers have set a mean one-year price goal of 117.5p, up 13.53% as we speak. So it in all probability isn’t the easiest share to purchase now. I’m anticipating lots extra motion, however at a slower tempo. I have already got a big stake in what’s a comparatively small firm, so in all probability received’t purchase extra