After I purchased development and engineering agency Costain Group (LSE: COST) on 29 November 2023, it fitted the technical definition of a penny inventory. The shares value me 60p. Right this moment, they’ve greater than doubled to 125p, so it’s a penny inventory no extra. It’s a red-hot progress inventory and I find it irresistible.

Costain’s now the best-performer in my Self-Invested Private Pension (SIPP). However by my requirements, it was a little bit of a punt.

Most of my holdings are FTSE 100 blue-chips, usually chosen for his or her dividends. Many have slimmer progress prospects in consequence. 3i Group, Rolls-Royce Holdings and Lloyds Banking Group have powered on since I purchased them, however none have matched Costain.

Restoration story with substance

The share price collapsed in 2020. Lockdowns hit development onerous and Costain additionally needed to swallow £90m of losses linked to particular contracts. It was all a bit sticky, and buyers abandoned the inventory. However after I took a more in-depth look in late 2023, one factor stood out. It had web money of £200m in opposition to a market-cap of £160m.

That’s what made me make the leap. The corporate had cash within the financial institution and was incomes an honest charge of curiosity on it too.

It was within the early phases of a turnaround and, fortunately, it’s continued. CEO Alex Vaughan has delivered regular progress. Final 12 months’s £10m share buyback boosted confidence. And on 15 Could, the group confirmed that buying and selling this 12 months has remained according to expectations.

Costain’s on observe to hit its adjusted working margin run charge goal of 4.5% in 2025. Its ahead work place, a key business measure, jumped £1.5bn to a document £5.4bn. The board expects web money to complete the 12 months near £180m. That’s under in the present day’s £340m market-cap however nonetheless a supply of consolation.

Momentum nonetheless sturdy

Costain’s technique of specializing in crucial nationwide wants appears to be delivering. Latest contract wins embrace work in nuclear vitality. The board stays assured and so do analysts. Of the six providing one-year scores, 5 say Sturdy Purchase and one says Purchase.

Nonetheless, share price progress might now sluggish. The 16 analysts providing price targets counsel a median forecast of simply over 145p. That’s a comparatively modest rise of round 17% from in the present day.

Nothing climbs without end. After a achieve of 47% over one 12 months and 217% over three, the fast cash might have been made.

Dangers stay

Building generally is a unstable sector. Costain’s nonetheless susceptible to the broader economic system and authorities spending. Chancellor Rachel Reeves has axed some infrastructure tasks. On the flipside, her push for pension funds to put money into UK infrastructure would possibly work in Costain’s favour.

There’s additionally the matter of rates of interest. Costain advantages from strong returns on its money pile, however decrease charges might scale back that. Whereas charges stay comparatively excessive for now, they could slide over time.

Even so, I’m nonetheless glad I took an opportunity on this hidden gem. Costain has momentum, a wholesome order e book and money within the financial institution. I could even contemplate shopping for extra, however I gained’t expect to double my cash once more in a rush.