<div id="readability-page-1"><div><h3>Key Insights</h3><ul><li> Using the 2 Stage Free Cash Flow to Equity, Alto Neuroscience fair value estimate is US$23.71 </li> <li> Alto Neuroscience is estimated to be 25% undervalued based on current share price of US$17.80 </li> <li>  The US$29.25 analyst price target for ANRO is 23% more than our estimate of fair value </li> </ul><p>Does the January share price for Alto Neuroscience, Inc. (NYSE:ANRO) reflect what it's really worth? Today, we will estimate the stock's intrinsic value  by estimating the company's future cash flows and discounting them to their present value.  The Discounted Cash Flow (DCF) model is the tool we will apply to do this.  Believe it or not, it's not too difficult to follow, as you'll see from our example!</p><p> Companies can be valued in a lot of ways, so we would point out that a DCF is not perfect for every situation.  If you still have some burning questions about this type of valuation, take a look at the Simply Wall St analysis model. </p><p>AI is about to change healthcare. These 20 stocks are working on everything from early diagnostics to drug discovery. The best part - they are all under $10bn in marketcap - there is still time to get in early.</p><h2> The Method </h2> <p> We are going to use a two-stage DCF model, which, as the name states, takes into account two stages of growth. The first stage is generally a higher growth period which levels off heading towards the terminal value, captured in the second 'steady growth' period.  To start off with, we need to estimate the next ten years of cash flows.   Where possible we use analyst estimates, but when these aren't available we extrapolate the previous free cash flow (FCF) from the last estimate or reported value. We assume companies with shrinking free cash flow will slow their rate of shrinkage, and that companies with growing free cash flow will see their growth rate slow, over this period. We do this to reflect that growth tends to slow more in the early years than it does in later years.  </p><p> Generally we assume that a dollar today is more valuable than a dollar in the future,  so we discount the value of these future cash flows to their estimated value in today's dollars: </p><h4> 10-year free cash flow (FCF) estimate </h4><table><tbody><tr><td> </td><td><strong>2026</strong></td><td><strong>2027</strong></td><td><strong>2028</strong></td><td><strong>2029</strong></td><td><strong>2030</strong></td><td><strong>2031</strong></td><td><strong>2032</strong></td><td><strong>2033</strong></td><td><strong>2034</strong></td><td><strong>2035</strong></td></tr><tr><td><strong> Levered FCF ($, Millions) </strong></td><td>-US$79.3m</td><td>-US$117.6m</td><td>-US$149.2m</td><td>-US$131.0m</td><td>US$28.9m</td><td>US$37.9m</td><td>US$46.5m</td><td>US$54.4m</td><td>US$61.3m</td><td>US$67.4m</td></tr><tr><td><strong>Growth Rate Estimate Source</strong></td><td>Analyst x3</td><td>Analyst x3</td><td>Analyst x3</td><td>Analyst x3</td><td>Analyst x3</td><td>Est @ 31.00%</td><td>Est @ 22.67%</td><td>Est @ 16.85%</td><td>Est @ 12.77%</td><td>Est @ 9.92%</td></tr><tr><td><strong> Present Value ($, Millions) Discounted @ 7.0% </strong></td><td>-US$74.1</td><td>-US$103</td><td>-US$122</td><td>-US$100</td><td>US$20.7</td><td>US$25.3</td><td>US$29.1</td><td>US$31.7</td><td>US$33.5</td><td>US$34.4</td></tr></tbody></table><p><i>(&#34;Est&#34; = FCF growth rate estimated by Simply Wall St)</i><br/><strong>Present Value of 10-year Cash Flow (PVCF)</strong> = -US$224m</p><p> We now need to calculate the Terminal Value, which accounts for all the future cash flows after this ten year period.  The Gordon Growth formula is used to calculate Terminal Value at a future annual growth rate equal to the 5-year average of the 10-year government bond yield of 3.3%. We discount the terminal cash flows to today's value at a cost of equity of 7.0%. </p><p><strong>Terminal Value (TV)</strong>= FCF<sub>2035</sub> × (1 + g) ÷ (r – g) = US$67m× (1 + 3.3%) ÷ (7.0%– 3.3%) = US$1.9b</p><p><strong>Present Value of Terminal Value (PVTV)</strong>= TV / (1 + r)<sup>10</sup>= US$1.9b÷ ( 1 + 7.0%)<sup>10</sup>= US$961m</p><p> The total value is the sum of cash flows for the next ten years plus the discounted terminal value, which results in the Total Equity Value,  which in this case is US$737m.  The last step is to then divide the equity value by the number of shares outstanding.  Relative to the current share price of US$17.8, the company appears   a touch undervalued    at a 25% discount to where the stock price trades currently.   Valuations are imprecise instruments though, rather like a telescope - move a few degrees and end up in a different galaxy. Do keep this in mind. </p><figure><img height="760" src="https://imageproxy.pbkrs.com/https://images.simplywall.st/asset/chart/1675972978-dcf-1-dark-2/1767266633239?x-oss-process=image/auto-orient,1/interlace,1/resize,w_1440,h_1440/quality,q_95/format,jpg" width="1706" original-src="https://imageproxy.pbkrs.com/https://images.simplywall.st/asset/chart/1675972978-dcf-1-dark-2/1767266633239"/><figcaption>NYSE:ANRO Discounted Cash Flow January 1st 2026</figcaption></figure> <h2> Important Assumptions </h2><p> The calculation above is very dependent on two assumptions. The first is the discount rate and the other is the cash flows.  Part of investing is coming up with your own evaluation of a company's future performance, so try the calculation yourself and check your own assumptions.  The DCF also does not consider the possible cyclicality of an industry, or a company's future capital requirements, so it does not give a full picture of a company's potential performance.  Given that we are looking at Alto Neuroscience as potential shareholders, the cost of equity is used as the discount rate, rather than the cost of capital (or weighted average cost of capital, WACC) which accounts for debt.  In this calculation we've used 7.0%, which is based on a levered beta of 0.800. Beta is a measure of a stock's volatility, compared to the market as a whole. We get our beta from the industry average beta of globally comparable companies, with an imposed limit between 0.8 and 2.0, which is a reasonable range for a stable business. </p> <p><span> View our latest analysis for Alto Neuroscience </span></p><h3>SWOT Analysis for Alto Neuroscience</h3><div><div><p><strong>Strength</strong></p><ul><li>Debt is well covered by earnings.</li></ul> <ul>Balance sheet summary for ANRO.</ul> </div><div><p><strong>Weakness</strong></p><ul><li>Shareholders have been diluted in the past year.</li></ul></div><div><p><strong>Opportunity</strong></p><ul><li>Trading below our estimate of fair value by more than 20%.</li></ul> </div><div><p><strong>Threat</strong></p><ul><li>Debt is not well covered by operating cash flow.</li></ul><ul><li>Has less than 3 years of cash runway based on current free cash flow.</li></ul> <ul><li>Not expected to become profitable over the next 3 years.</li></ul> <ul>Is ANRO well equipped to handle threats?</ul> </div></div><h2> Next Steps: </h2><p> Although the valuation of a company is important, it  is only one of many factors that you need to assess for a company.  The DCF model is not a perfect stock valuation tool.  Instead the best use for a DCF model is to test certain assumptions and theories to see if they would lead to the company being undervalued or overvalued.  For example, changes in the company's cost of equity or the risk free rate can significantly impact the valuation.   Why is the intrinsic value higher than the current share price?   For Alto Neuroscience, we've put together three  essential  items  you should look at: </p><ol> <li> <strong>Risks</strong>: For example, we've discovered <strong>4 warning signs for Alto Neuroscience</strong> (2 can't be ignored!) that you should be aware of before investing here. </li> <li><strong>Future Earnings</strong>: How does ANRO's growth rate compare to its peers and the wider market? Dig deeper into the analyst consensus number for the upcoming years by interacting with our free analyst growth expectation chart.</li><li> <strong>Other Solid Businesses</strong>: Low debt, high returns on equity and good past performance are fundamental to a strong business. Why not explore our interactive list of stocks with solid business fundamentals to see if there are other companies you may not have considered! </li> </ol><p> PS. Simply Wall St updates its DCF calculation for every American stock every day, so if you want to find the intrinsic value of any other stock just search here.</p><div><p>Mobile Infrastructure for Defense and Disaster</p><p>The next wave in robotics isn't humanoid. Its fully autonomous towers delivering 5G, ISR, and radar in under 30 minutes, anywhere.</p><p>Get the investor briefing before the next round of contracts</p><p><span>Sponsored On Behalf of CiTech</span></p></div></div></div>

ANRO

<p>Alto Neuroscience, Inc. (NYSE:ANRO) is estimated to be 25% undervalued, with a fair value of $23.71 compared to its current share price of $17.80. Analysts have set a price target of $29.25, indicating a potential upside. The valuation is based on a two-stage Discounted Cash Flow (DCF) model, which estimates future cash flows and discounts them to present value. The total equity value is calculated at $737 million, suggesting the stock is undervalued. However, the DCF model has limitations and relies on assumptions about future performance.</p>

Alto Neuroscience, Inc.'s (NYSE:ANRO) Intrinsic Value Is Potentially 33% Above Its Share Price