As the United States gross domestic product (GDP) figures for the quarter recently suggested that the American consumer was mostly responsible for carrying economic growth, investors might wonder whether it is still worth it to look into buying some retail stocks in the cyclical space, or whether the wave is toward its last inning and might roll over soon.

Well, the answer can only be found in the fundamentals and price action, where companies report their quarterly results, and markets react by either punishing or rewarding that company’s stock price in the following days. Today, plenty in the consumer discretionary space have shown both of these requirements to be true, with the latest test subject being shares of Bath & Body Works Inc. (NYSE: BBWI).

After reporting its latest quarterly financial results, Bath & Body Works saw its stock rally by over 17.5% in a single day. If that is not confirmation of this brand's ability to keep riding the consumer spending tailwind, then nothing will be. Before figuring out whether there is more upside ahead in the stock, investors should dig into the financial results and attempt to identify the latest trends in the company, positioning it in the right direction.

Markets Eye Bath & Body Works Stock: Future Plans Drive Investor Optimism

While the current quarter only delivered 3% revenue growth, which wasn’t really satisfying compared to the stronger names in the retail sector, it seems that markets are welcoming a new management strategy that could position Bath & Body Works near the top of the industry in the coming quarters.

That strategy is technology implementation, which will drive margins and efficiency higher and allow for more scalability in the future. More than that, Bath & Body Works makes most of its U.S. products, and markets have already expressed their bullish sentiment for domestic manufacturing stocks.

This theme aside, management feels confident that these new technological changes will drive free cash flow and net earnings higher for the following quarters. Hence, the guidance in future financials was added to the rally, and the optimistic reaction was derived from the broader market.

Here’s another factor that markets might consider for support: Up to 85% of Bath & Body Works sales come from their loyalty and rewards membership program, making sales and projections potentially more stable and predictable for Wall Street analysts to project and value.

The 4% increase in active loyal members over the year, reaching a high of 38 million today, is driving this future adoption and predictability. These customers have given management’s digital sales strategy the green light to keep investing in those verticals.

Understanding their audience and preferences today has led Bath & Body Works to invest in TikTok shops, creating a new digital sales channel away from their mobile app, driving margins and reach without too much leg work.

Wall Street's Forecast: What Lies Ahead for Bath & Body Works Stock

While Wall Street analysts will have to update their models and adjust for these recent results, investors can still pick up where the latest ratings left off. Recently, Morgan Stanley reiterated its Overweight rating for BBWI, this time keeping a price target of up to $48 a share.

To prove this valuation accurate, the stock would need to stage a rally of as much as 33% on top of the double-digit rally it has already achieved after earnings. Investors should keep in mind that as bullish as these targets are, they still do not reflect the optimistic trends that markets identified this week. For this reason, investors could expect higher price targets to roll in during the coming months.

Analysts aren’t the only ones who recognize the potential upside still left in Bath & Body Works stock today, as short sellers have recently decided to step away from their positions. Over the past month, BBWI's short interest declined by as much as 9.3%, showing signs of bearish capitulation in the face of all this new potential upside. To replace some of these short sellers leaving the table, Bath & Body Works insiders decided to step up to the plate.

The company’s CEO, Gina Boswell, recently purchased up to 6,000 shares of stock, giving investors a new reason to monitor the company’s future for potential additional rallies.