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