Why SINA Corp. Stock Skyrocketed Today

By Markets Fool.com

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

Continue Reading Below

What's happening:Shares of SINA Corp. were up 22% as of 11:30 a.m. Monday after the company announced an agreement with its chairman and CEO, Charles Chao, for a $456 million cash investment.

Specifically, SINA says it has entered a "legally binding subscription agreement" with Chao for the issuance of 11 million newly issued ordinary shares of the company. In turn, Chao will purchase (either directly or through a "special purpose vehicle beneficially owned and controlled by him") those 11 million shares for roughly $456 million.

Why it's happening:That equates to a purchase price of $41.49 per share, or the average trading price of SINA stock for the 30 trading days ended May 29, 2015. In addition, Chao's new shares will be subject to a contractual lock-up restriction for six months after closing.

With shares of SINA down around 8% over the past year going into the previous trading day's close, this is an enormous vote of confidence in the company's future. To be sure, SINA's previous declines were largely driven by its falling bottom line and sluggish top-line growth of late, as operating expenditures increased while investors remained concerned over whether SINA's stake in Weibo could continue driving growth. Of course, this doesn't completely assuage those concerns, but it's hard to blame the market for so aggressively bidding up SINA stock given the sheer size of Chao's optimistic bet.

The article Why SINA Corp. Stock Skyrocketed Today originally appeared on Fool.com.

Continue Reading Below

Steve Symington has no position in any stocks mentioned. The Motley Fool recommends Sina. 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.