When I bought my favourite FTSE 250 stock a couple of years ago, it wasn’t even in the index. It is now.

Infrastructure solutions specialist Costain Group (LSE: COST) stormed back into the FTSE 250 on 2 March after a 20-year absence. It marks a remarkable turnaround for a business that took a right old beating. Happily, I got in relatively early, buying the shares in November 2023. Is it too late to hop on board?

Costain was caught up in the outsourcing crisis that sank Carillion in 2018. The pandemic made things worse. In 2020 the shares crashed more than 80% as projects stalled and profits evaporated. A painful £90m loss on two large road schemes completed the rout.

Costain Group shares shoots the lights out

One thing caught my eye in the aftermath. Costain was sitting on a pile of cash roughly equal to its market value. That looked like both a safety net and a springboard. The recovery has been extraordinary. The share price has surged 345% over three years and almost 95% over 12 months.

Market cap now sits around £531m, so it’s still a relatively small business. That potentially leaves room to grow if momentum continues.

The rally gathered fresh pace after yesterday’s (10 March) impressive 2025 results, with the shares jumping almost 18%. Costain delivered another year of strong financial progress across water, defence, energy, and transport projects. The forward order book surged 30% to a record £7bn. That’s roughly seven times annual revenue of £1.05bn, giving unusually strong visibility.

Adjusted operating profit rose 9.3% to £47.1m while margins improved to 4.5%. Strong cash generation has strengthened the balance sheet and allowed management to increase shareholder returns.

The group confirmed a £20m share buyback and lifted its total dividend to 4.2p for the year. That’s a 75% increase on the 2024 payout of 2.4p (helped by pension funding restrictions being lifted). Now it plans to adopt dividend cover of three times adjusted earnings to keep payouts sustainable while the business expands. The trailing dividend yield stands around 2.11% and analysts expect that to rise close to 2.5% in 2026.

Valuation still looks reasonable

Despite the strong run, the valuation still looks modest. The shares trade on a price-to-earnings ratio of 13.8. Management believes performance could step up again later this decade as customers increase investment in transport, water, and energy network infrastructure. Operating margins should top 5% over time.

Infrastructure contracting always carries risks. Pricing complex projects is difficult and mistakes can prove costly. Costain has found that the hard way. The UK economy is struggling and government finances remain stretched, threatening new infrastructure spend. Revenue will always ebb and flow depending on when projects are awarded and completed.

Even so, the record order book offers encouraging visibility. Momentum is clearly behind the business. I thought the rally might cool a year ago, yet the shares have powered on. The valuation still looks reasonable and the pipeline of work is enormous. I think Costain is still worth considering. I’m now on the look out for the next big recovery story.