Investing in cheaper, high-quality small-cap stocks is a good strategy to generate market-based returns over time. In this article, I have identified two such TSX stocks that are trading below $20 as of October 2025.
Is this small-cap TSX stock a good buy?
Valued at a market capitalization of $175 million, Xtract One Technologies (TSX:XTRA) develops and sells AI-powered threat detection systems that automatically scan people at the entrance of locations for weapons such as guns and knives.
These products include SafeGateway and SmartGateway solutions that use sensors to identify hidden threats without invasive searches. The company serves stadiums, casinos, schools, workplaces and other high-traffic facilities that require security controls.
Xtract One Technologies reported weaker-than-expected third-quarter results, with revenue falling to $3.5 million from $4.7 million in the same period last year.
Xtract One explained that it is shifting from smaller deals to Fortune 100 customers, who require longer evaluation periods, significantly extending the sales cycle. However, this change in strategy should also yield larger and more predictable contracts over time.
Xtract One’s cash burn increased during the quarter due to initial production costs for the One Gateway rollout. The company has already secured $6.7 million in One Gateway orders from five customers, with average deal sizes approximately three times larger than typical SmartGateway contracts.
Management highlighted a huge addressable market for the One Gateway product, estimating $15 to $30 billion in K-12 education alone, as well as an additional $8 billion opportunity in distribution centers and commercial buildings. The company currently offers $46 million in Request for Proposal (RFP) capabilities and maintains a pipeline of approximately $100 million.
Notably, Xtract One ended its third fiscal year with a backlog of $36.5 million and is expected to report revenues of $30 million in fiscal 2025, representing a 100% year-over-year increase. Revenue is also expected to reach $83 million in fiscal 2029.
Xtract One is expected to end 2029 with free cash flow (FCF) of $22 million, compared to outflows of $9.40 million in fiscal 2024. If the TSX tech stock is sometimes priced at forward FCF, it could nearly triple within the next four years.
Is this TSX tech stock undervalued?
Vecima networks (TSX:VCM) develops integrated hardware and software solutions in three segments. Video and broadband solutions provide platforms that provide internet connectivity over cable and fiber optic networks through products such as Terrace and Entra. Content Delivery and Storage offers MediaScale solutions for video recording, storage and streaming services. The Telematics segment offers fleet management analytics under the Contigo and Nero Global Tracking brands.
Vecima Networks reported a challenging fiscal 2025 ending June 30, with flat revenue but significant strategic progress that positions the company for future growth.
Fourth quarter revenue was $68.8 million, up 7.5% sequentially but down 21% year over year as customers completed preparations for network upgrades. It posted a full-year net loss of $0.73 per share, which was heavily impacted by $15 million in non-cash charges.
Management has written down certain deferred development costs and inventory related to cable and fiber access solutions that have evolved into more successful alternatives.
Adjusted earnings before interest, taxes, depreciation and amortization came in at $28.9 million, despite currency headwinds due to a sharp decline of $0.06 in the U.S. dollar against the Canadian dollar.
The bright spot was the Video and Broadband Solutions segment, which achieved record annual revenue for the Entra family despite timing delays.
Vecima has signed a major, multi-year vCMTS agreement with Cox Communications, positioning itself as one of only three suppliers worldwide that can serve Tier 1 broadband providers with this next-generation technology. The vCMTS market is expected to reach $350 million annually by 2028.
Analysts predict Vecima will increase its free cash flow to $63 million in fiscal 2030, compared to outflows of $29 million in fiscal 2024. If VCM stock is priced at 10 times FCF, it could gain more than 150% from current levels.
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