Up 350% in 3 years but my favourite FTSE growth share is still on a low P/E of just 10!

I thought I couldn’t love my favourite UK growth share more, but I do. It’s up another 17% in the last month. Over 12 months, it’s up 70%, and over three years, a bumper 345%.

The company in question is Costain Group (LSE: COST), which I added to my Self-Invested Personal Pension in a fit of stock-picking inspiration in December 2023.

Top recovery stock

I’m currently sitting on a gain of 144%, making it the best performer in my SIPP. It’s comfortably ahead of Rolls-Royce, up 103% since I bought in August 2024, and private equity firm 3i Group, up 101% since August 2023.

Just a few short years ago, Costain was reeling from Covid lockdowns and a painful £90m hit on problematic contracts, yet that rough patch has become the springboard for its current success.

No fresh updates have landed since the last one on 16 June, but the story remains strong. The first half of the year is going according to plan, and the board confirmed it retains a “strong, high-quality forward work position” worth more than four times annual revenues, with further bids in play. This long-term visibility allows management to plan ahead and invest.

The board remains upbeat about future prospects. So do analysts. Of the six offering ratings, five say Strong Buy, one says Hold, and none are negative.

Cash cushion and capital returns

The group still carries a healthy cash balance. While this has dipped from £200m to around £180m, it still compares favourably with today’s £411m market cap. That offers reassurance, even though falling interest rates will reduce the returns on that cash.

Shareholders are being rewarded too. The full-year 2024 dividend doubled from 1.2p to 2.4p. The dividend yield today is 1.43%, which might not knock anyone’s socks off, but isn’t bad given the soaring stock price. Costain is also offering share buybacks, with the latest £10m programme announced just weeks ago.

Construction is never risk-free. Contract pricing is tricky and cost overruns can still sting. And while Rachel Reeves has signalled support for public investment, infrastructure spending could still get delayed or squeezed as she wrestles with the deficit.

Forecast slowdown

Here’s another note of caution. Although shares have soared, the 12-month median target from analysts is just 152.8p. That’s close to where we are now, suggesting the quick gains may be over. Of course, some of those estimates may pre-date the recent surge and require updating.

The FTSE 100 may have hit a record high of 9,000 this week, but some of the most exciting growth stories are found further down the market-cap scale.

Costain’s price-to-earnings ratio has crept up from 8.8 last month to 10.34 today, but that still suggests there’s value here, even after recent gains.

I may be sitting on a tidy profit, but there’s no way I’m selling. The business looks solid, momentum is strong, and management keeps delivering. Given the low valuation, high cash pile, and strong order book, I think investors might still consider buying today. Just temper those expectations slightly.

The post Up 350% in 3 years but my favourite FTSE growth share is still on a low P/E of just 10! appeared first on The Motley Fool UK.

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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.