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Including International Peers in Valuation

When you build a peer set for comparable analysis, your first instinct may be to stay close to home—to pull competitors from your own country or region. Yet the best companies in many industries operate globally, and their strongest competitors often sit outside your domestic market. Ignoring international peers means ignoring a crucial part of the competitive landscape and potentially skewing your valuation.

This article explains why international peers matter, how to find them, how to adjust for currency and structural differences, and when to weight them appropriately in your analysis.

Quick Definition​

International peers are competitors operating in the same industry and market as your target company, but incorporated or headquartered outside your home country. Including them in your comp set gives you a more complete picture of global valuation norms for the business, and tests whether your target is valued fairly relative to overseas competition.

Key Takeaways​

  • International peers expose you to global valuation norms; omitting them can distort your comp multiples and hide arbitrage opportunities.
  • Currency fluctuations, accounting standards, and tax regimes differ by country and must be adjusted or at least acknowledged.
  • Not all international peers are equally comparable; size, business model, growth rate, and exposure matter more than geography.
  • Emerging-market comps often trade at a discount to developed-market equivalents, but the discount is sometimes earnings-driven, not purely multiple-based.
  • A balanced peer set typically includes 40–60% domestic peers and 40–60% international peers, depending on industry structure and your target's geographic mix.

Why International Peers Matter More Than You Think​

The vast majority of beginner comp analysts build peer sets that are mostly or entirely domestic. They do this for convenience: data is easier to find, language barriers vanish, and you already know the accounting rules and tax systems. But this approach has a severe blind spot.

Consider automotive manufacturing. If you value a German car company by comparing it only to other German and European peers, you miss a critical context: Japanese competitors (Toyota, Honda, Nissan) and now Chinese competitors (BYD, Li Auto) are setting global standards for manufacturing efficiency, battery cost, and pricing power. A comp set that excludes them understates competitive intensity and may overprice your target.

Similarly, if you analyze a U.S. cloud software company using only American comps, you ignore SAP (Germany), Salesforce's rivalry with ServiceNow, and the emergence of Chinese alternatives. Your multiple assumptions become parochial and brittle.

International peers also reveal arbitrage opportunities. A company may trade at a 15% discount to its domestic peers on EV/EBITDA but at a 5% premium to its international peers on the same metric. That gap often signals either: (1) mispricing in the target, (2) genuine differences in growth or quality that the international comp set captures better, or (3) currency factors or governance premiums that aren't yet priced in.

Building a Global Peer Set: Process and Pitfalls​

Finding International Competitors​

Start with your industry classification. Use a screener or database that covers global companies:

  • Bloomberg, FactSet, or Capital IQ allow you to filter by GICS or NAICS industry and then remove geographic filters.
  • For European companies, use Bureau van Dijk Amadeus or equivalent local databases.
  • For Asian and emerging-market companies, platforms like Morningstar or Refinitiv provide reasonable coverage, though data gaps exist in smaller or less-liquid markets.

Once you have a global list, apply the same criteria you use for domestic peers: revenue size, geographic footprint, product mix, and profitability. Do not add an international company to the set merely because it exists in the same industry. It must genuinely compete with your target.

The Accounting Standards Problem​

Here is where it gets complex. International peers may report under:

  • International Financial Reporting Standards (IFRS), used by most of Europe, Asia-Pacific, and emerging markets.
  • Generally Accepted Accounting Principles (GAAP), used by the United States and a few others.
  • Local GAAP, used by some smaller or less-developed markets.
  • A hybrid (many large companies report under both).

The differences matter:

  • Revenue recognition timing differs between IFRS and GAAP, particularly for long-term contracts.
  • EBITDA is not defined identically across regions; some exclude stock-based compensation, others include it.
  • Pension accounting, lease capitalization (post-IFRS 16/ASC 842), and depreciation assumptions vary.
  • Tax rates and loss carryforwards are treated differently.

When you compute multiples from international peers, convert them all to the same standard if possible. If you are comparing a U.S. GAAP company, recompile the IFRS peers' numbers under GAAP assumptions, or use a tool that does this adjustment. Bloomberg and FactSet typically provide this; manual recompilation is tedious and error-prone.

Currency Effects: Nominal vs. Real​

An international peer's trading multiple is quoted in its home currency. When you convert it to your target's currency for comparison, exchange rates matter.

A Japanese automotive supplier might trade at 10x EBITDA in Japanese yen. If the yen strengthens against your target's currency (say, U.S. dollars), that 10x appears more expensive when expressed in dollars, even though nothing fundamental changed. This is a nominal effect, not a real economic change.

To avoid this noise, do one of two things:

  1. Use the peer's entire trading history in one currency (typically USD) so you compare apples to apples over time.
  2. Use a "real" or purchasing-power-adjusted exchange rate that accounts for inflation differences between the two countries (though this is beyond beginner analysis).

For a one-time snapshot, converting the peer's trading multiple using the spot exchange rate is acceptable, but flag the currency assumption in your memo. If the yen is at an extreme level relative to historical norms, use a normalized or average rate instead.

Tax Rate Adjustments​

A German company may benefit from a 25% statutory corporate tax rate, while a U.S. peer faces 21%. That difference flows through to net income and, therefore, to P/E multiples. A German peer trading at 18x P/E might have an effective tax rate of 20%, while a U.S. peer at 20x P/E might have an effective rate of 18%. After adjusting for tax, the German company could be pricier on an after-tax basis.

When comparing net-income-based multiples across countries, compare effective tax rates and either normalize them to a single rate or use EV/EBITDA instead, which is less sensitive to tax differences.

The Small-Country and Emerging-Market Discount​

Many companies headquartered in smaller or emerging markets trade at a persistent discount to equivalently-sized and profitable companies in developed markets. This discount reflects real economic factors:

  • Liquidity risk: Shares may be less liquid, raising the cost of capital.
  • Governance risk: Weaker legal protections or more opaque disclosure.
  • Currency risk: The company's earnings may be denominated in a weaker currency, and currency volatility raises risk.
  • Political risk: Expropriation, currency controls, or regulatory instability.
  • Analyst coverage: Fewer sell-side analysts cover emerging-market stocks, reducing information efficiency.

A Brazilian or Indian company with identical growth, profitability, and return on capital to a U.S. peer will often trade at a 20–40% discount to that U.S. peer on the same multiple. This discount is not an arbitrage; it is a premium for risk and liquidity that the market rationally charges.

When you include emerging-market peers, acknowledge this discount. Do not assume it away. Instead, ask: Is my target genuinely exposed to the same risks as that emerging-market peer? If your target is a U.S.-listed company, even if it competes globally, it benefits from U.S. liquidity and legal protections. Its peer set should reflect that.

A Mermaid Model: Geographic-Adjusted Peer Selection​

Real-World Examples: When International Peers Change the Story​

Example 1: Microsoft and SAP​

Microsoft trades at roughly 10x EV/Sales and 35x P/E (as of recent periods). If you built a peer set for Microsoft using only Salesforce, Adobe, and ServiceNow, you might get an average of 8x EV/Sales and 30x P/E. That would suggest Microsoft is overvalued.

But SAP, the German software giant, often trades at 4–5x EV/Sales and 20–25x P/E. SAP is less of a pure cloud-first company; it has a legacy perpetual-license business, lower cloud growth, and lower margins. When you include SAP as a legitimate peer, you see that Microsoft's premium multiple is earned through superior growth and ROIC. The international peer set prevents you from making a false "overvaluation" conclusion.

Example 2: LVMH and Luxury Comps​

LVMH (France) is the world's largest luxury-goods conglomerate. Its nearest U.S. comps are Tapestry (formerly Coach) and Capri, both much smaller. If you built a luxury-goods peer set for LVMH using only U.S. peers, you would miss Kering (Gucci, Saint Laurent, Balenciaga), Hermès, and Richemont (Cartier, Van Cleef & Arpels). These European and Swiss peers trade at comparable multiples but have different growth profiles and margins. Including them reveals that LVMH's premium is justified by superior scale and brand power, not overvaluation.

Example 3: Tesla and Chinese EV Makers​

A few years ago, if you valued Tesla using only legacy automakers, you would conclude Tesla's valuation was absurd. Legacy automakers traded at 3–5x sales and 4–6x EBITDA, with 5–8% ROIC. Tesla traded at 15–30x sales.

Introducing BYD, NIO, and Li Auto—all Chinese EV makers—changed the frame. These companies traded at 3–5x sales but had 20–30% gross margins and 20–40% growth rates. Tesla's premium made more sense once you saw that the market was pricing it as a technology/growth company, not a legacy automaker, and the Chinese comps reinforced that valuation framework.

Common Mistakes When Using International Peers​

Mistake 1: Mixing Currencies Without Adjustment​

Adding a European peer's multiple in euros to a U.S. peer's multiple in dollars, then averaging, is nonsense. Always convert to a single reporting currency before averaging or comparing.

Mistake 2: Ignoring Disclosure Differences​

A company reporting under IFRS may not break out gross profit; a GAAP company always does. You cannot compute EBITDA margins consistently if one peer's EBITDA is estimated and another's is disclosed. Acknowledge this gap; do not pretend symmetry.

Mistake 3: Overweighting Emerging-Market Peers​

An emerging-market competitor with identical fundamentals to your developed-market target is not comparable on a multiple basis because it faces higher cost of capital and lower liquidity. Overweighting it will pull your median multiple down and lead to undervaluation. Use emerging-market comps for context, not as equal-weight participants.

Mistake 4: Assuming Language Barriers Mean No Data​

Translation tools now make it feasible to review international financial statements and press releases. Do not skip a relevant peer just because it reports in Japanese, German, or Mandarin. Use Google Translate or a professional service if needed; the effort often uncovers insights hidden in English-language coverage.

Mistake 5: Neglecting Competitive Dynamics​

A European company may look like a peer, but if it has zero presence in your target's key market, it is not a true peer. Competitive overlap and exposure matter more than classification. A company competing in five of your target's seven key markets is a better peer than one that is nominally in the same industry but in a different region.

FAQ​

Q: Should I weight all international peers equally to domestic peers?

A: No. Weight by size, profitability, and similarity to your target. A large, profitable Japanese competitor is a stronger peer than a small, unprofitable Thai one. Use revenue or EBITDA to weight, or apply a qualitative downweight to smaller or riskier comps.

Q: How do I handle a peer that reports under local GAAP?

A: If the peer is large and liquid enough to matter, invest in a reconciliation to IFRS or GAAP. If it is a smaller peer, use it as a sense-check but not as a primary data point. Data accuracy matters more than peer count.

Q: Does including an emerging-market peer bias my valuation low?

A: Yes, if you do not adjust for it. The emerging-market discount is real. Either apply a liquidity and governance uplift to the EM comp's multiple, or exclude it from the median and use it as a contextual range boundary instead.

Q: What if my target has high foreign exchange exposure? Should I adjust for it?

A: Yes. If your target earns 30% of revenue in euros and the euro weakens, reported earnings fall, dragging down multiples. When comparing the target to an international peer that earns most revenue in euros, the currency effect is more symmetrical and less concerning. Document your FX assumptions.

Q: How many international peers do I need?

A: At least 2–3, and ideally enough to make 30–50% of your final peer set. Fewer than that, and you may miss important competitive dynamics; too many, and you dilute the focus. Quality beats quantity.

  • Comparable company analysis basics: See Building a peer set that actually compares.
  • Size-adjusting comps: Global peer sets often include companies of different sizes; see Size-adjusting comps and the small-cap discount.
  • Currency in valuation: Covered in more depth in DCF chapters on discount rates and terminal value assumptions.
  • Emerging-market risk premiums: Related to cost-of-capital topics in the DCF section.
  • Cross-border M&A and control premiums: Relevant to precedent transaction multiples.

Summary​

International peers are not optional. They anchor your valuation to global competitive norms, prevent parochial blind spots, and reveal arbitrage opportunities. The process requires attention to accounting standards, currency effects, tax rates, and structural differences—but the effort pays off in a more robust and defensible valuation.

Start by mapping your target's true competitive universe. If it competes globally, your peer set must reflect that. Adjust for accounting, currency, and tax differences. Acknowledge and account for emerging-market and small-country discounts. When you do, you will find that international peers often provide the most important reality check: whether your target's valuation is reasonable not just domestically, but in the global marketplace where it actually competes.

Next​

In the next article, we explore Size-adjusting comps and the small-cap discount, addressing how to handle peers of markedly different sizes and when size justifies a premium or discount.