LONDON, United Kingdom — Large shareholders in British online fast-fashion retailer boohoo see market concerns over the company's profit margins as overblown and are making the most of a share price rout to add to their holdings.

The owner of online brands boohoo, boohooMAN, PrettyLittleThing (PLT) and Nasty Gal was priced for flawless execution ahead of its results last September, when the shares were trading at 73 times forward earnings after rising four-fold since a 2014 IPO.

After boohoo nudged down its core profit margin forecast, the shares slumped 16 percent on the same day. The company blamed investments in pricing, promotion and marketing and the shares have continued to decline, even as those of close rival ASOS soared.

Analysts fear that boohoo has reached the moment where a higher rate of investment is inevitable to maintain rapid sales growth, eating into profitability.

Competition is fierce, with US behemoth Amazon sacrificing profits to cement its dominance of global online retail. Amazon's low-on-hassle shopping service Prime Wardrobe has weighed on boohoo shares, as has some share selling by co-founder Carol Kane and by the brother of the company's other founder, Mahmud Kamani.

But for some influential smaller-cap investors, a fixation on near-term profit margins misses the point. Richard Watts of top boohoo institutional shareholder Old Mutual Global Investors called the recent sell-off "a storm in a teacup."

Watts, who runs the £3.4 billion Old Mutual UK Mid Cap Fund, bought more shares towards the end of 2017.

He highlighted boohoo's plans to automate its only warehouse, in Burnley, the UK, which it is also extending. It currently has a manual pick system in place, which involves workers walking around the warehouse picking items from shelves.

Warehouse automation is not without its risks. Watts says a sensible strategy would be to phase it in — perhaps starting with one of the smaller brands, Nasty Gal or PLT.

"The benefits of that automation are significant and that is why I believe margins aren't on a downward trajectory but actually they will start to stabilise and indeed actually maybe start to grow in the outer years," Watts said.

Watts puts productivity of a picker in a semi-automated or automated system at probably four times that of a manual system.

Help from the Kardashian

Boohoo imitates the latest fashions and readies them for sale quickly. It is far smaller than rivals ASOS and Inditex's Zara and focuses on a niche: very cheap, often brash designs at "pocket money" prices that appeal to younger buyers.

Co-founder Kamani markets the clothes using style setters popular with teenagers on social media such as U.S. celebrity family the Kardashians.

Kamani started out with a market stall and the AIM-listed company is now worth £2.1 billion ($2.9 billion). Boohoo is known for its skill in sourcing product cheaply and its mainly UK supply base means designs are on sale in 2-6 weeks.

Aberdeen Standard Investments (ASI) also added to holdings in boohoo after recent weakness. It has owned boohoo across a wide range of funds with various investment styles since its IPO.

Like Watts, Frederik Nassauer, who covers retail stocks at ASI, is sanguine about profit margins.

The company is being punished for one of its brands being in growth phase (PLT) and the other, Nasty Gal, seeing start-up losses, he said.

"You might take a dilutive effect on margins short term, but medium term, as these mature, actually the margins should be supportive — should go up, not down," he said.

Matthew Hall, co-manager of Allianz Global Investors' UK Mid Cap fund, chose not to invest in boohoo after putting a fair amount of work into an appraisal of the firm. He does hold ASOS.

He says of boohoo that for a firm with sales outside the UK, relying on one large warehouse in the UK is perhaps a flawed strategy given delivery speed is key.

But for Peel Hunt analyst John Stevenson, putting its products on third-party platform ASOS should help boohoo with delivery times. Unlike boohoo, which sells only own brand products, ASOS is more than half wholesaler.

"At some point boohoo may want to put down international roots, but there's no need when you can get a parcel over to the U.S. on a two-day delivery or use ASOS to give you next day reach when they've built theirs," he said.

Editors: Tom Pfeiffer and Susan Fenton.