Founded in by brothers Tom and David Gardner, The Motley Fool helps millions of people attain financial freedom through our website, podcasts, books, newspaper column, radio show, and premium investing services. That rally was sparked by CEO Steve Ballmer's retirement in early , and then supported by enthusiasm for the ambitious plans of his successor, Satya Nadella. Unlike Ballmer, who milked Microsoft's cash cows of Windows and Office but missed key shifts toward mobile and cloud-based technologies, Nadella pivoted the company toward cross-platform strategies, subscription-based cloud software, cloud platforms, and innovative new hardware such as the HoloLens and Surface Studio.

These moves were costly, but many analysts believe they can get Microsoft back on track. However, some of that enthusiasm might have caused the stock to get ahead of itself. Let's look at six signs that it might be smarter to sell Microsoft instead of buying it at current levels.

Microsoft currently trades at 30 times earnings. Part of that valuation can be attributed to the attractiveness of its 2. Since a PEG ratio under 1 is considered fundamentally "cheap," Microsoft can't be considered a value play at current prices. By comparison , some peers trade at two and three times sales. Microsoft's sales growth has accelerated on the strength of its cloud services and platforms, but sales of Windows consumer licenses were throttled by its year-long giveaway of Windows 10 for most Windows 7 and 8 users.

3 Reasons to Buy Microsoft Corporation (MSFT) Stock Right Now | InvestorPlace

Microsoft's growth isn't strong enough to justify its premium valuation. Giving out Windows 10 as a free upgrade, investing in new features for its cloud services, developing new hardware, and buying big companies like LinkedIn to expand its ecosystem is a costly strategy. Moreover, many of the cloud and mobile markets Microsoft is expanding into are highly competitive ones with declining margins.

The crux of Nadella's new Windows strategy is to make it a multiplatform OS. That "One Windows" vision includes the same OS and app store running across PCs, tablets, smartphones, and Xbox consoles. For tablets and smartphones, a feature called Continuum converts the devices into full desktops.

That strategy sounds great, but Microsoft has failed to penetrate the key smartphone market, which is dominated by iOS and Android. Without that foothold, Microsoft remains at a major disadvantage in mobile.

The core of Microsoft's cloud strategy is Azure, its cloud Infrastructure-as-a-Service IaaS platform that provides computing power and analytics services to businesses and lets developers create apps within the cloud. It also serves as the backbone to many of Microsoft's cloud services, including Office and Dynamics CRM. Azure is the second-largest cloud platform in the world, after Amazon Web Services, but it generates only about a fourth of its annual revenue, according to most industry estimates.

To close that gap, Microsoft may need to pile on more features while slashing prices -- which would dent its margins.

Over the past six months, Microsoft's insiders have sold over 16 million shares but haven't bought a single share on the open market. That lack of insider confidence, coupled with the stock's high valuations and expensive growth plans, indicates that the stock could slip lower in the near future.

I'm not saying Microsoft is a bad long-term investment. It has an incredibly wide moat in the consumer PC and enterprise markets, and its cloud growth looks promising.

But it's probably not wise to buy Microsoft as it hovers near historic highs, and investors should wait for the stock to cool off before starting a new position. Leo Sun owns shares of Amazon. The Motley Fool owns shares of and recommends Amazon. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Leo is a Tech and Consumer Goods Specialist who has covered the crossroads of Wall Street and Silicon Valley since His wheelhouse includes cloud, IoT, analytics, telecom, and gaming related businesses. Follow him on Twitter for more updates! Skip to main content The Motley Fool Fool. Premium Advice Help Fool Answers Contact Us Login.

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