Back in March I decided the best share to buy for rapid, sustainable growth was smart infrastructure specialist Costain Group (LSE: COST). I’m up around 68% since then, including dividends.
Investors who got in early have done even better. Over one year, the Costain share price has climbed 78.45%. It’s up a mighty 143.82% over two years.
That kind of performance is always likely to catch the eye, but also triggers my suspicions. Surely it can’t keep climbing at that kind of speed, can it?
Can the share price keep flying?
Yet the shares don’t look particularly expensive, trading at 8.52 times earnings. That’s comfortably below the FTSE All-Share average of 14.6 times.
Also, Costain is sitting on a £166m net cash pile. That’s almost 60% of its £284m market cap, which adds a layer of security. Better still, it’s earning a steady stream of interest on the money, although this will fall when the Bank of England starts cutting base rates further.
Its first-half results, published on 21 August, revealed a “very healthy” book of £4.3bn following a string of new contract wins.
That’s important because Costain’s revenues are likely to be bumpy as they rise and fall depending on contract starts and completions. First-half revenues actually dipped 3.8% to £639.3m in the six months to 30 June after it finished the main works at Gatwick station.
Adjusted operated profits nonetheless rose 8.7% to £16.3m. Operating margins jumped 20 basis points to 2.5%. Obviously, that doesn’t leave much room for error. The board is aware of the risk and is aiming to increase margins to 3.5% in 2024 and 4.5% in 2025. That’s still tight though.
This FTSE stock has further to go
Lest we forget, Costain has been volatile in the past. Its shares crashed more than 80% in 2020 as the pandemic disrupted operations and hit profitability. It also took a £90m hit on two big contracts, the Peterborough & Huntingdon gas compressor and A465. Management subsequently overhauled its contracting processes but bidding for infrastructure projects will always be fraught with risk.
Another issue is that the UK economy is still riddled with uncertainty, as inflation proves sticky, growth slows and potential tax hikes loom. This could hit funds for infrastructure products.
Costain’s shares slumped on 10 September when Dubai-based Al Shafar General Contracting Company (ASGC) sold just over 41.6m shares to institutional investors. That’s equivalent to 15% of the issued share capital. However, the share price has mostly recovered from that short-term hit.
Costain axed its dividend during the pandemic but restored it in 2023, as this table shows.
Chart by TradingView
The forecast 1.3% yield isn’t great but given that it’s covered 9.1 times by forward earnings, I’m optimistic it will increase steadily over time. Costain has just started a £10m share buyback too.
Brokers have set an average one-year price target of 117.5p, up 13.53% today. So it probably isn’t the very best share to buy now. I’m expecting plenty more action, but at a slower pace. I already have a large stake in what’s a relatively small company, so probably won’t buy more
The post Up 145% but still cheap with a P/E of 8.5! Is this the best share to buy today? appeared first on The Motley Fool UK.
5 stocks for trying to build wealth after 50
Inflation recently hit 40-year highs… the ‘cost of living crisis’ rumbles on… the prospect of a new Cold War with Russia and China looms large, while the global economy could be teetering on the brink of recession.
Whether you’re a newbie investor or a seasoned pro, deciding which stocks to add to your shopping list can be a daunting prospect during such unprecedented times. Yet despite the stock market’s recent gains, we think many shares still trade at a discount to their true value.
Fortunately, The Motley Fool UK analyst team have short-listed five companies that they believe STILL boast significant long-term growth prospects despite the global upheaval…
We’re sharing the names in a special FREE investing report that you can download today. We believe these stocks could be a great fit for any well-diversified portfolio with the goal of building wealth in your 50’s.
Claim your free copy now
More reading
£10,000 of savings? Here’s how I’d aim to turn that into £499 a month of passive income!
Here’s why the Lloyds share price could move closer to £1!
Over 50? Here are 2 dividend stocks to consider buying for passive income
Could this 11p penny stock light up my Stocks and Shares ISA?
Here’s the dividend forecast for Tesco shares through to 2027
Harvey Jones has positions in Costain Group Plc. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
