Seeking Alpha
Value, long only, small-cap
Profile| Send Message|
( followers)  

John over at Shadow Stock just did an excellent write-up on the intrinsic value of Itex Corp. (OTCQB:ITEX). I really like his discussion of depreciation and capex; his thoughts are quite similar to my own.

While I once owned shares of ITEX, I don't as of right now. To be honest, a lot of the reason why is that I really hate what management does in regards to dealing with people who want to improve the company. Presently, there is an unnecessary amount of cash on the balance sheet and a CEO who seems intent on staying there forever, while diluting out other shareholders.

While there have been a lot of shares repurchased, it may well have been done to further solidify management's control of the company. In fact, according the most recent 10Q, employees of the company have been granted shares of stock, which, by a dollar amount, more than offset the whole of the repurchase program. Keep in mind that the numbers are in thousands.

In March 2011, the company issued 197 restricted shares to 13 of the company’s employees, valued at the grant date stock price of $4.25 per share, with a vesting period of five years from the date of grant. The fair value of these shares as of the grant date was $837. The grant is to be amortized to compensation expense over the respective requisite service period of five years.

In March 2011, the company issued 190 restricted shares to the company’s CEO, valued at the grant date stock price of $4.25 per share, with a vesting period of 11.5 years from the date of grant. The fair value of these shares as of the grant date was $808. The grant first vests 19 shares in October 2013 and then another 19 shares vest annually in October of each subsequent year. The grant is to be amortized to compensation expense over the respective requisite service period of 11.5 years.

In March 2011, the company issued five restricted shares to a consultant who is also a board of director, valued at the grant date stock price of $4.25 per share, with a vesting period of one year from the date of grant. The fair value of these shares as of the grant date was $21. The grant is to be amortized to compensation expense over the respective requisite service period of one year.

Here is another part of the quarterly that further puts the matter into perspective.
To me, Itex is a company that is cheap but pretty hairy. I openly wonder if those who voted with management in the last proxy battle are happy with their decision in regards to this cash flow machine of a company. Additionally, I am curious if Sardar Biglari has had any contact with ITEX, despite that this is a pretty small holding of Biglari Holdings (NYSE:BH). Regardless, despite not being long the stock, I will continue to watch the situation as it unfolds with great interest. As one of my friends recently pointed out to me, I had followed Syms (SYMS) for well over two years before pulling the trigger on it. Maybe under the right circumstances, I will once again be an owner of ITEX.
Disclosure: Long SYMS.
Source: Determining Itex Corp.'s Intrinsic Value