Investing in lower-priced, high-quality small-cap stocks is a sound strategy for generating market-beating 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 cap of $175 million, Xtract One Technologies (TSX:XTRA) develops and sells AI-powered threat detection systems that automatically scan people for weapons like guns and knives at venue entrances.
These products include SafeGateway and SmartGateway solutions that use sensors to identify concealed threats without invasive searches. The company serves stadiums, casinos, schools, workplaces, and other high-traffic facilities requiring security screening.
Xtract One Technologies reported weaker-than-expected third-quarter results, with revenue falling to $3.5 million from $4.7 million in the prior year period.
Xtract One explained that it is shifting from smaller deals to Fortune 100 clients, who require longer evaluation periods, thereby significantly extending the sales cycle. However, this shift in strategy should also deliver larger and more predictable contracts over time.
Xtract One’s cash burn increased during the quarter due to upfront manufacturing 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 roughly three times larger than typical SmartGateway contracts.
Management highlighted a massive addressable market for the One Gateway product, estimating $15 billion to $30 billion in K-12 schools alone, as well as an additional $8 billion opportunity in distribution centres and commercial buildings. The company is currently bidding on $46 million worth of request for proposal (RFP) opportunities and maintains a pipeline of roughly $100 million.
Notably, Xtract One ended fiscal Q3 with a backlog of $36.5 million and is forecast to report revenue of $30 million in fiscal 2025, representing a 100% year-over-year increase. The top line is also projected to reach $83 million in fiscal 2029.
Xtract One is expected to end 2029 with a free cash flow (FCF) of $22 million, compared to an outflow of $9.40 million in fiscal 2024. If the TSX tech stock is priced at times forward FCF, it could almost triple within the next four years.
Is this TSX tech stock undervalued?
Vecima Networks (TSX:VCM) develops integrated hardware and software solutions across three segments. Video and Broadband Solutions provides platforms that deliver internet connectivity over cable and fibre networks through products like Terrace and Entra. Content Delivery and Storage offers MediaScale solutions for video ingestion, storage, and streaming services. The Telematics segment provides 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 reached $68.8 million, up 7.5% sequentially but down 21% year over year, as customers completed network upgrade preparations. It posted a net loss of $0.73 per share for the year, which was heavily impacted by $15 million in non-cash charges.
Management wrote down certain deferred development costs and inventory related to cable and fibre access solutions that evolved into more successful alternatives.
Adjusted earnings before interest, tax, depreciation, and amortization came in at $28.9 million despite foreign exchange headwinds from a sharp $0.06 drop in the U.S. dollar versus the Canadian dollar.
The bright spot was the Video and Broadband Solutions segment, which achieved record annual Entra family sales despite timing delays.
Vecima secured a major, multi-year vCMTS agreement with Cox Communications, positioning itself as one of only three vendors worldwide capable of serving Tier 1 broadband providers with this next-generation technology. The vCMTS market is forecast to reach $350 million annually by 2028.
Analysts forecast Vecima to increase its free cash flow to $63 million in fiscal 2030, compared to an outflow of $29 million in fiscal 2024. If VCM stock is priced at 10 times FCF, it could gain over 150% from current levels.
