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ITEX: An Overlooked Potential Beneficiary Of An Economic Slowdown Ripe For Acquisition By Financial Services Firm

Mar. 05, 2020 9:21 AM ETITEX Corporation (ITEX)22 Comments
William Matson, CFA profile picture
William Matson, CFA


  • With a $6.55 million market cap, ITEX is the U.S.’s largest publicly traded barter exchange. Barter activity is countercyclical and likely to increase in an economic slowdown.
  • ITEX currently holds $4.547 million in cash and cash equivalents ($2.71 per share) and has virtually no debt.
  • Enterprise value at 2/28/20 was $2.015 million ($1.20 per share), 2.7 times ITEX’s trailing 12 month net income of $736,000.
  • ITEX has a network of several thousand member businesses whose relationships could be leveraged into additional business for an acquiring bank or other financial services firm.
  • There is a large, untapped addressable market for ITEX services, since relatively few small business owners are currently familiar with the benefits of barter.

A Likely Beneficiary of An Economic Slowdown

Given that the coronavirus will likely result in an economic slowdown, entailing higher rates of unemployment and an overall lessening of demand for labor, ITEX Corp. (OTCPK:ITEX) would be well positioned to benefit from these developments and reverse its long term trend of declining revenues.

As is the case with barter in general, ITEX's business is countercyclical. In booming economies, the volume of business done through ITEX tends to decline. Businesses become less focused on conserving cash, hotels have fewer vacancies, retailers' inventories turn over more quickly, and service professionals have less idle time to fill. Not surprisingly, when economic booms create new jobs, some individuals accept these jobs and reduce (or abandon) their online trading in the sorts of items offered by ITEX members. Thus, ITEX's revenues are likely to decline in strong economies and rise in slow economies.

  • Assuming that S&P 500 returns are an appropriate indicator of economic strength, that has, indeed, been the case. Starting in ITEX's FYE 7/31/07 (the second full year following its acquisition of the BXI Exchange), the company's revenues have risen in both years that the S&P 500 fell (i.e. during the years ended August 1, 2008 and 2009).
  • During the 11 years the S&P 500 rose (i.e. those ended August 1 of 2007, as well as of 2010-2019), ITEX's annual revenues declined 10 times (every year except 2010).
  • In other words, ITEX's revenues have moved counter to the S&P 500 in 12 years out of the last 13, giving reason to believe that they will increase when the economy slows down. In the meantime, however, ITEX has continued to squeeze surprisingly strong operating profits from its declining revenues.















This article was written by

William Matson, CFA profile picture
I am currently seeking full-time employment with a family office, foundation, or endowment. I am attracted by the unique opportunity that these entities can provide for me to generate alpha. Due to market impact costs, eight-figure portfolios enjoy an enormous advantage versus their multi-billion dollar peers. Why? Other things being equal, the millionth share of a market order for Apple shares will much cost more than the thousandth because of market impact. Having a portfolio manager dedicated full time to a single employer can minimize these costs - especially when investing in small company stocks. Between July 2000 and December 2022, I achieved returns of 9998.6% in my primary personal account (22.8% compounded annually). These returns were mostly earned in small cap value stocks and are fully documented with brokerage statements from major firms at www.OysterRiverFinancial.com. Data Driven Investing, a book I co-authored in 2004, is also downloadable (free) at that same website. Along with an accounting degree from Babson and Harvard MBA, I hold CFA (Chartered Financial Analyst) and CFP (Certified Financial Planner) designations. I am also a retired CPA (Certified Public Accountant). Nothing in any Seeking Alpha articles (or other Seeking Alpha content) authored by me constitutes a recommendation by either Oyster River Financial, LLC or me to buy, sell or hold any specific security. Past performance does not guarantee future performance.

Analyst’s Disclosure: I am/we are long ITEX. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

Nothing in any Seeking Alpha articles (or other Seeking Alpha content) authored by me constitutes a recommendation by either Oyster River Financial, LLC or me to buy, sell or hold any specific security.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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Comments (22)

rjm22 profile picture
What is up with ITEX? My broker is showing a 2 cent share price or something.
They have disappeared from otcmarkets.
If I recall they are late on an annual meeting/proxy.
rjm22 profile picture
@rjm22 1 for 2000 reverse split.
Smallfries get $4.50 per share.


rjm22 profile picture
@rjm22 Ridiculous that I have not been paid yet. I called my broker last week and they said the 23rd. This is the 25th and still no payment.
Is it my broker or the ITEX taking an interest free loan?
rjm22 profile picture
Quarterly came out yesterday- also they promoted Rob Benson to president

Nothing earthshattering but improved earnings versus last year and cash continues to build

$3.56 per share in cash

No proxy statement in over 2 years- last was 2-22-19

I say issue a $3 a share cash distribution
William Matson, CFA profile picture
They're doing a couple splits (1 for 600, then 600 for 1) - then buying out positions < 600 shares for $4.50. Site where I saw this yesterday is currently down.

rjm22 profile picture
I looked yesterday and did not see anything at otcmarkets.com or anywhere else. The symbol stopped working at my broker today and adding a D on the end yields an old quote it looks like. No cash hit my account today either.

Sounds like a forced reverse merger for holders of 600 or under. It looks like the symbol was switched to a cusip number at my broker and its showing zero value.
rjm22 profile picture
It now traded - ITEXD. Showing $3.80-5.50. 600 traded. 500 at $5 and 100 at $5.50.
rjm22 profile picture
Its now showing at ITEXD at otc markets and I found the PR. It may have been there yesterday and I thought it was old news because they did one in 2017 too.

rjm22 profile picture
ITEX has woken from the dead on heavy volume. No news that I could find. I could not understand why it was down so much and now I cant understand why its up so much. But I feel better about not selling in the last tender at $4.30.

But I wonder if someone knows something?

Dec 21, 2020 4.4900 4.4900 4.3300 4.4600 4.4600 75,902

Dec 18, 2020 4.0100 4.1800 3.9200 4.1700 4.1700 15,800
rjm22 profile picture
They reported yesterday. Unlike last year they did not announce the dividend the same day. (Prior year they announced it on 11/19) No trades today. $3.80-3.89 bid/ask.

Some strong language in there.

" The outbreak and preventative or protective actions that governments have taken in

respect of this coronavirus have resulted in a period of business disruption, reduced customer traffic, reduced

operations, and has adversely affected workforces, economies, and financial markets. Furthermore, our

Marketplace is primarily composed of small businesses, many of which were forced to cease operations and as a

result, may not survive. Our revenues declined approximately 20% during the last two quarters of fiscal 2020

compared to the first two quarters. The duration of the disruption, attrition of our Marketplace members,

general labor instability, loss of employee efficiency from working remotely, impairment of our Marketplace’s

ability to deliver products and services, and the related financial impact cannot be reasonably estimated at this

time and may materially affect our consolidated results for 2021 and future years. It is not possible for us to

predict the duration or magnitude of the adverse results of the outbreak and its effects on our business, results

of operations, financial condition or ability to raise funds. If events or circumstances occur such that we do not

meet our operating plan as expected, we may be required to reduce planned activities, incur additional

restructuring charges or reduce other operating expenses which may impair our ability to achieve our intended

business objectives."

EPS were 49 cents versus 45 cents. Cash and book value increased.

Gross cash is $3.35 per share. Book Value is $4.61. Using fully diluted share count.

The Covid 19 pandemic has caused much financial and emotional stress in our Marketplace and our

entire organization. Corporate staff are required to comply with the Stay Home mandate and our efficiencies

and productivity are significantly negatively impacted, with communication frustrations running high. Many of

our small business customers have been forced to close their business or have elected to shut down due to very

little business commerce being conducted. Our Marketplace transactions declined rapidly. Because of the

negative financial hardships caused by Covid 19 and subsequent business shutdowns, we applied for and

received a PPP loan. $176,000 and forgivable.

rjm22 profile picture
Looks like they are late compared to prior years. Last year their annual report came out on 10/18 and the prior year 10/19. I hope it's nothing bad. Could be covid slowing them down a bit?
William Matson, CFA profile picture
Wouldn't be surprised. The first epicenter of covid in the U.S. wasn't far from their HQ in Bellevue, WA.
William Matson, CFA profile picture
There's a member directory feature on the ITEX website at:

Because it gives the exact dates that individual members joined the ITEX network, It can be valuable to investors looking for clues re: how ITEX's recruitment efforts are going, as well as being a potential indicator of overall revenues.

I did my own rough sampling of this data for over 1000 members, comparing 2020 join figures for February, March & April with corresponding joins for 2019 who are still members.

Based on this analysis, I believe that the current economic slowdown has probably been beneficial to ITEX's member recruitment and overall revenues for the company's soon-to-be-reported-upon quarter ended 4/30/20.
rjm22 profile picture
Earnings were 5/30 last year and 6/1 the year before. But, covid delays are common this year.
rjm22 profile picture
Not a great quarter. Revenue $1768 versus $2028 and earnings $169 versus $236k.

But, they have $5 million in cash.

William Matson, CFA profile picture
Enterprise Value/TTM Net Income = 1.8X
Enterprise Value/TTM Operating Income = 1.3X

Pretty cheap for a consistently profitable business.
William Matson, CFA profile picture
Per Bloomberg: "The International Reciprocal Trade Association represents 100 barter exchanges, each catering to thousands of businesses. Some exchanges reported a 20% to 35% increase in member signups in March, said Ron Whitney, president and chief executive officer of the group, known as IRTA."

rjm22 profile picture
Disappointing that they let the stock decline without buying it back. They previously bought at $4.30 both in the tender offer and later.
During the six month period ended January 31, 2020, 3000 shares of common stock were repurchased.
William Matson, CFA profile picture
Based on the 1/31/20 shares outstanding of 1,678,268 and trailing 12 month earnings of $736,000, EPS would be 43.9 cents and P/E would be 8.9 - rather than the $.31 EPS and P/E of 12.4 shown by Seeking Alpha.

These differences arise mainly because Seeking Alpha's figures are based on ITEX's July 2017 data.

Note also that my figures differ from what the technically correct GAAP numbers would be because mine ignore the impact of ITEX's stock buybacks and issuances during the year ended 1/31/20.
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